Golden State Looks On as Others Threaten To Cut Medicaid

by Dan Diamond, California Healthline Contributing Editor

The federal health reform law is intended to bring sweeping improvements to the nation’s health care system — but analysts repeatedly have warned that its many provisions may bring unintended consequences, too.

High-risk pools could force some ill patients to temporarily go without coverage. Formal medical-loss ratios may push low-income workers out of employee-sponsored health insurance. New regulation could spell the end of health savings accounts.

The most far-reaching fear: state-based insurance health exchanges could upend traditional paths toward health coverage.

Discussion of the exchanges’ potential adverse effects has focused on possible changes to employer-sponsored coverage. Just 52% of 1,400 employers in a recent survey said they expect to continue offering group medical plans after the exchanges take effect in 2014.

However, in the past week a new wrinkle has emerged: Some states are threatening to pull out of the Medicaid program, citing current deficits and fears that the reform law will worsen their budget woes.

Texas Leads Charge Away From Program

The effort has gained steam in Texas, led by GOP lawmakers, and about a dozen other states have considered the idea.

According to some Texas Republicans, Medicaid and CHIP are contributing to a state budget deficit that some estimate to be nearly $25 billion. Meanwhile, the pending Medicaid expansion — which will expand program eligibility beginning in 2014, as called for by the reform law — will further strain state coffers, these lawmakers say. One leading GOP Texas state representative argues that some of these newly eligible individuals have made poor lifestyle choices, like smoking and misusing alcohol, and yet “we’re supposed to provide their health care.”

Among the ideas considered by lawmakers, Texas could seek federal waivers to revise its Medicaid program. Alternately, using only state money to fund Medicaid — and abandoning federal matching funds provided by the government — would allow Texas the flexibility to determine benefits.

According to a Heritage Foundation report, states collectively would save $1 trillion across a decade by opting out of federal Medicaid money, and one of the report’s authors last week said that Texas specifically would save $46.5 billion between 2014 and 2019. Conservative analyst Reihan Salam proposes that opting out of Medicaid would allow states to “create new programs, perhaps modeled on Indiana’s subsidized HSA program.”

Can States Even Opt Out?

Health care experts and economists have debated whether opting out of Medicaid would even be feasible for states. The game-changing question: Would HHS allow low-income individuals who lose Medicaid coverage to receive subsidies and purchase private insurance through the exchanges?

The department is reportedly mulling the answer, and HHS officials would “put [the idea] to rest and move on with implementation” by saying no, according to New America Foundation’s Kavita Patel.

Opponents of the idea say that regardless of eligibility issues, states would damage their economies by rejecting federal Medicaid funds. The federal government currently covers 60% of Texas’ biennial Medicaid budget, which is $45 billion. Opponents also say that if Texas lost that funding, emergency departments would be flooded with patients, care would be less efficient and Texans likely would pay higher premiums for private health insurance.

Meanwhile, others have suggested that the effort is motivated by politics and perception. Texas Gov. Rick Perry (R) ramped up speculation about Texas pulling out of Medicaid while promoting a book that applauds anti-federal sentiment on CNN. The search for alternatives to Medicaid might be more about states’ seeking more leverage to receive more federal funding, according to former Congressional Budget Office Director Robert Reischauer.

Why California Doubled Down on Medicaid

While Medicaid pullouts are being discussed by top GOP officials in state houses and Congress, one name is conspicuously absent from the debate: California’s own Republican governor, Arnold Schwarzenegger.

Anthony Wright of Health Access notes that Schwarzenegger once pushed proposals to eliminate or dramatically scale down health programs like Healthy Families and Medi-Cal, the state’s CHIP and Medicaid programs. However, “those options were rejected by the Legislature for what they were — extreme, absurd, unworkable, costly and counterproductive, if not simply wrong and immoral,” according to Wright.

Instead, Schwarzenegger has changed his position on the programs, becoming one of the most prominent Republican champions of health reform and helping secure a federal Medi-Cal waiver that promises to be transformative.

Writing in the Washington Post, liberal analyst Suzy Khimm contrasts California and Texas as the “Jekyll and Hyde” of health reform, noting that the Golden State is moving forward with its Medicaid expansion, while the Lone Star State continues to push back against the law. Khimm also contends that California leaders have decided “that it’s worth betting on health-care reform and reaping the benefits of federal dollars sooner than later.”

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