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The Federal Medicaid Apple: Poison or the Cure?

As the uncertainty about healthcare reform was extinguished by the Supreme Court in its 5-4 decision upholding the Affordable Care Act, with the provision that the Department of Health and Human Services may not withhold Medicaid funding from states that refuse to adopt the Medicaid expansion, all states, including Kentucky, now have important decisions to make about expansion of Medicaid to a projected 22.3 million uninsured eligible individuals.  Under the Affordable Care Act, the federal government will pay the full cost of covering the newly eligible Medicaid participants for three years from 2014 to 2016.  Thereafter the federal share will gradually decline until it reaches 90% in 2020.  For traditional Medicaid, the federal government now pays, on average, about 57% of a state’s total Medicaid costs.  With 826,941 Kentucky Medicaid beneficiaries in January 2012, and an additional 290,000 individuals that would be covered under the expansion, Governor Steve Beshear has announced that he is studying the issues and the costs.

If states choose to expand eligibility, then the federal government will pay the cost for the next six years.  While this may seem like a “no brainer,” Texas, Mississippi, Florida, South Carolina, Louisiana and other states have already announced their intention to opt out.  These opt-out states all have greater than a 20% uninsured population — exactly the population that the Affordable Care Act strove to insure.  These states have opted out based upon a concern that federal funding will end leaving states with the financial burden of paying for the expansion.  States have also cited concerns about the additional administrative costs for the expansion, as well as a concern that individuals who are already eligible for Medicaid will now sign up for the program because of increased public awareness.  The cost of covering these individuals who are already eligible will be covered only at the traditional Medicaid federal funding rate.   These costs will not be considered to be expansion costs that will be fully covered by the Federal government.  Consequently, these opt-out states justify their decisions based upon the projected costs that the individual state may incur.

Currently, CMS has not announced a deadline for states to decide whether to participate in the expansion.  Because this is an election year, several states have announced that they will delay making the decision until the winner of the presidential election is known.  Meanwhile, states with the lowest rates of uninsured, such as Minnesota, Vermont and Massachusetts, have committed to the expansion. Most analysts seem convinced that every state will eventually give in and accept the expansion funding because it is too much money to give up. By accepting the federal awards for implementation of the state insurance exchanges, Governor Beshear seems intent on maximizing Kentucky’s federal dollars.  However, the Governor must decide whether these expansion dollars are the poison or the cure.

Lisa English Hinkle

Lisa English Hinkle is a Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC.  Ms. Hinkle concentrates her practice area in health care law and is located in the firm’s Lexington office.  She can be reached at lhinkle@mmlk.com or at (859) 231-8780. 

This article is intended as a summary of federal and state law and does not constitute legal advice.

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