Published 9/1/2012
Jordan Apfeld, BA; Andrew Han; Tyler Stern; Hassan Mir, MD; William T. Obremskey, MD, MPH; A. Alex Jahangir, MD; Manish K. Sethi, MD

Implications of the Supreme Court Ruling on Medicaid

Jordan Apfeld, BA; Andrew Han; Tyler Stern; Hassan Mir, MD; William T. Obremskey, MD, MPH; A. Alex Jahangir, MD; and Manish K. Sethi, MD

The recent decision by the Supreme Court of the United States of America (SCOTUS) about the Patient Protection and Affordable Care Act (PPACA) included a ruling on the use of Medicaid to increase the number of Americans with healthcare coverage. PPACA attempted to mandate an expanded Medicaid program by requiring states to cover individuals younger than age 65 with incomes at or below 133 percent of the federal poverty level. States that did not comply would lose all federal Medicaid funds.

The Court ruled that only new funds available to the states under the expansion could be withheld if states did not comply with the expanded program. In his opinion, Chief Justice Roberts ruled that imposing stipulations on all Medicaid funding “crossed the line from encouragement to coercion.” Thus, the ruling made it possible for states to opt out of an expanded Medicaid program. And recently, the Centers for Medicare & Medicaid Services (CMS) announced that states that expand their Medicaid programs may choose to drop the expansion later.

This article examines some Medicaid basics, the evolution of the program, the impact of the Court’s recent Medicaid ruling and the reactions from state governments, as well as the potential for the future.

Creation and evolution
Both Medicaid and Medicare were created by the Social Security Amendments of 1963. Medicaid is a means-tested, needs-based, social welfare program designed to fund medical services for low-income or underserved Americans. Specific focus is given to children, pregnant women, parents of eligible children, people with disabilities, and some elderly who need nursing home care.

Medicaid is a joint federal–state program; an aggregate 57 percent of funds currently come from the national government. Benefit payments for services are made from a state Medicaid agency to healthcare providers—most often managed care organizations. CMS oversees the states’ implementation of Medicaid and establishes requirements. Most notably, coverage must be limited to “medically necessary services.”

Since 1965, Medicaid has undergone moderate alterations (in the form of at least 50 amendments). The Omnibus Budget Reconciliation Act of 1990 created a Medicaid Drug Rebate Program to ensure that drugs would be covered and affordable under Medicaid. The Health Insurance Premium Payment Program allows Medicaid recipients to accept payments for private health insurance.

In 1997, the creation of the State Children’s Health Insurance Program (SCHIP) set a precedent by allowing states to bundle Medicaid administration with other federal or state programs. Most recently, a 2008 federal rule enabled state Medicaid administrations to charge premiums and higher copayments to participants.

Healthcare reform 2010 and Medicaid
PPACA’s expansion of Medicaid would require states that participate to cover nearly all people at or below 133 percent of the federal poverty line, starting in 2014. The law also includes a “maintenance-of-effort” provision that prohibits states from decreasing Medicaid coverage until they have established the mandated health insurance exchanges also specified in the PPACA.

Under the plan, the federal government will cover 100 percent of the costs of this expansion from 2014 through 2016; funding will steadily decrease to 90 percent by 2020, with further reductions planned. Other increases in funding are scheduled for SCHIP, certain miscellaneous Medicaid-supported services (ie, birth centers and hospice), and state-run benefit application websites.

As a result of the SCOTUS ruling, states do not have to prepare or alter state administration structures for a Medicaid expansion, but would have to adjust to the new guidelines for additional funding from the national government.

Although states such as Texas and Florida are expected to delay or forego Medicaid expansion for ideologic reasons, many analysts believe that the incentives for states to participate are “too good to pass up.” Indeed, a recent study may provide a moral argument for expansion. Although some scholars still claim that Medicaid coverage is worse than no coverage, the study found that extending Medicaid coverage results in lower rates of uninsurance, reduction in cost-related delays in care, and improvements in self-reported health.

States, however, may see the expansion conditions as a threat to their control over Medicaid administration, and partial implementation of the expansion will undercut PPACA’s optimistic predictions for cost and coverage. Many other states may delay implementation or seek waiver authority. Overall, most analysts estimate that 35 to 40 states will accept the expansion, a few states will decline, and 5 to 15 will seek more favorable terms.

Originally, PPACA hoped to extend health insurance to approximately 30 million Americans, or more than 90 percent of the population. The Medicaid expansion was supposed to contribute 16 million to that total. The SCOTUS decision and the states’ reactions, however, may significantly reduce that number (Fig. 1).

Republican lawmakers, among others, maintain that “Medicaid should be a last-resort safety net program and not a mechanism to reduce the number of uninsured.” For opponents of PPACA, the decision represents a small win for state autonomy in determining Medicaid programs, as well as entitlements at large. They look for increased bargaining space for states down the road, especially if Mitt Romney wins the November 2012 presidential election.

A Republican presidency and majorities in both houses of Congress could reshape Medicaid as a block grant program, instead of a more hands-on central-government model. This may result in more states backing out of Medicaid subsidies.

Medicaid and orthopaedics
What does the SCOTUS decision on PPACA’s Medicaid provisions mean for orthopaedic practices? One possibility is that the government will provide less financial backing and reimbursements on the front end and that states will have to pick up even more costs to bolster the uncompensated care pool in the long run. With a smaller safety net program, healthcare policy decisions may trend toward a less centralized, more individualized coverage scheme (ie, individual vouchers or individual exchange coverage).

Although the imminent influx of funds may result in a higher utilization of and access to preventive and primary services, the struggle to contain costs will continue. The creators and supporters of PPACA will undoubtedly attempt to salvage the Medicaid expansion so that the legislation meets its primary goal of increasing health insurance coverage among Americans.

Even though the Supreme Court attempted to step aside from policy decisions, their opinion left open immense questions about Medicaid policy. The current ambiguity and uncertainty about how states will implement the Medicaid expansion put PPACA and its legacy in a tenuous position. Both in the short run—with the approaching presidential election—and in the long run—with respect to the feasibility of reaching ideal health coverage and cost goals—Medicaid will have an impact on the delivery of health care in America.

Jordan Apfeld, BA; Andrew Han; Tyler Stern; Hassan Mir, MD; William T. Obremskey, MD, MPH; A. Alex Jahangir, MD; and Manish K. Sethi, MD, are all associated with the Vanderbilt Center for Health Policy.