The Misleading Arguments in the States’ Medicaid Coercion Brief

Sara Rosenbaum and Katherine Hayes

Posted 1/19/12 on The Health Affairs Blog

©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc. 

On January 10th, the states filed their latest arguments in their bid to have the ACA’s Medicaid expansion declared an unconstitutional coercion.  Following an effort to piece together a coercion doctrine from dicta found in a handful of Supreme Court cases, the states assert that the “[t]he ACA is Premised on the Understanding that It Forces States to Expand Medicaid” (page 33) and that “the ACA revolutionizes Medicaid to make it serve the mandate and the ACA’s broader goal of near-universal coverage.” (page 34)

This revolution, according to the states, is accomplished by the fact that the minimum essential coverage requirement reaches all persons other than those who are exempt as a result of incarceration, covered by a religious or conscience exemption, or not lawfully present in the U.S. (26 U.S.C. §5000A(d))  Furthermore, the states argue, because Medicaid is expressly identified as an acceptable form of minimum essential coverage (26 U.S.C. §5000A(f)(1)(A)(ii)), and because individuals with incomes below 133 percent of the federal poverty level (the upper Medicaid eligibility threshold) are ineligible for advance premium tax credits through state health insurance Exchanges, Medicaid effectively becomes the only option for fulfilling the minimum essential coverage requirement.

In other words, argue the states, “[t]he lack of any contingency plan” (page 35) for the poor means that “Congress transformed Medicaid from a program designed to provide insurance to certain discrete categories of the needy, with substantial state discretion as to eligibility and the level of coverage, into one designed to provide a minimum level of coverage to every needy person.” (page 34)  For this reason, the states claim, “State participation in Medicaid [is] not a matter open to choice.” (page 34-35)

But this argument conveniently ignores several crucial facts.

First, although the minimum essential coverage requirement nominally applies to all individuals with the above-noted narrow exceptions, the poor are excused because the Act exempts people with incomes below the federal income tax filing threshold ($9500.00 for individuals and $19,000 for married couples filing jointly in 2011) from the financial penalty for failing to maintain minimum essential coverage. (26 U.S.C. §5000A(e)(2))  This means that the great majority of individuals and families eligible for Medicaid face no penalties for failing to enroll.

Second, the narrow swath of individuals and families whose incomes exceed the tax filing threshold but are below 133 percent of the federal poverty level (the upper bound of Medicaid eligibility) will qualify for the affordability exemption that applies to any person for whom the “required contribution for coverage” for any month exceeds 8 percent of household income. (26 U.S.C. §5000A(e)(1)(A))  Within this group, virtually no one will fail to qualify for such an exemption. This is because of the cost of even a bronze plan.

The Congressional Budget Office has estimated that in 2016 a bronze individual plan will cost between $4500 and $5000 and family plan between $12,000 and $12,500.  Thus, individuals with gross incomes below $56,250 to $62,500 and families with gross incomes below $150,000 to $156,625 – levels that are exponentially higher than the Medicaid cutoff of 133 percent of the federal poverty level ($14,483 for an individual and $29,275 for a family of four) simply are not subject to the minimum coverage requirement penalty.

Third, even in the extraordinary event that a bronze plan is considered affordable because its price is less than 8 percent of annual household income for a Medicaid recipient, an individual can file for ahardship exemption through the state health insurance Exchange, (26 U.S.C. §5000A(e)(5)), which presumably would be automatically granted given the individual’s ineligibility for premium tax credits despite exceptionally low income.

Fourth, whatever befalls the poorest people in states that opt to leave Medicaid rather than comply with the coverage expansion, this is the headache that Congress created for itself by excluding this population from the Act’s premium tax credit and Exchange provisions.  Congress made a reasonable judgment that using a tax credit approach to subsidize coverage for people who by and large are not taxpayers makes no sense. Lawmakers concluded – not surprisingly – that Medicaid remains the best way to help the poor, since it has been the mainstay source of health care financing for the poor for nearly a half century.

To minimize the burden on the states from having made such a choice, Congress agreed to cover 100 percent of the cost of the expansion for the first three years, and 90 percent over time.  This contribution is far higher than the law’s regular federal contribution levels for mandatory coverage groups, which range from 50 percent to 83 percent of program costs. Congress banked on the belief that states would remain in Medicaid, just as they have in response to multiple expansion mandates enacted in previous years, particularly given the economic value of the Act’s Medicaid expansion to states. Indeed, the Urban Institute projects that the Medicaid expansion actually will save states money — $12 to $19 billion in 2020 alone — by reducing the cost of uncompensated care for Medicaid-ineligible indigent adults.  Since 1965, minimum eligibility standards, coupled with minimum expected coverage levels, have represented the Congressional approach to building Medicaid.  This time is no different.

Fifth, of course, all of the states’ finger-pointing at individuals’ obligations does not change the basic fact that Medicaid remains voluntary with states.  A state that doesn’t like the deal Congress is offering can leave the program at any time and figure out other ways to meet whatever it defines as its health care obligations toward its poorest residents.

One could argue that Congress should not have made so many operational and policy assumptions about the deal it was offering.  But Congress had good reason to rely on the states to agree to a major role for Medicaid in a broader national scheme: indeed, it was precisely this approach that was used by a Republican Congress and President in designing Medicare Part D, which is a national program of prescription drug coverage for Medicare beneficiaries, built in significant part through state financial contributions through Medicaid to Medicare’s coverage arrangement on behalf of dual enrollees.

One might take the position, of course, that Congress should have anticipated an exodus by some states and created a fallback system of Exchange coverage and premium credits for poor people living in states that choose not to participate in Medicaid. This might have been a viable policy choice, not to mention the moral and ethical thing as a means of assuring that most Americans truly will have access to affordable insurance coverage.  Congress did not make that choice, however, electing instead, perhaps, to revisit the issue in the event that such consequences should transpire.

One might fault this policy choice, but no amount of seething on the states’ part can paper over the fact that Medicaid remains a voluntary program.

Sara Rosenbaum, J.D., is the Harold and Jane Hirsh Professor and founding Chair of the Department of Health Policy, George Washington University School of Public Health and Health Services. Katherine Hayes is an Associate Research Professor in the same Department.

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