The Facts on Medicaid Expansion

WHAT ARE SOUTH CAROLINA’S OPTIONS?

Since the passage of the Affordable Care Act (widely known as Obamacare) and the U.S. Supreme Court’s decision that the law is constitutional, there has been quite a bit of confusion over what states can and cannot control. The High Court’s opinion gave states the option not to expand their Medicaid program while still maintaining the dollars they receive today. If states choose to expand Medicaid, they will receive expanded funds Obamacare provides. Further, the law specifies that each state must either establish its own health care exchange by 2014 or allow the federal government to do so in its place.

The arguments against the state setting up its own exchange are powerful:

  • If they choose to administer and fund their own exchange, states can enjoy such “flexibilities” as website design, call center hours, board membership eligibility guidelines, and the choice of whether to incorporate with an existing state agency or fund and empower a nonprofit with the same service requirements.
  • States will have no flexibility to accept or reject specific Obamacare market “reforms” like guaranteed issue, community rating, and minimum coverage requirements.
  • The federal government will attempt to “shield” consumers from premium increases by providing direct subsidies to those making up to 400 percent of the federal poverty level, which will be passed out through exchanges. This range includes nearly 60 percent of South Carolina’s entire population.
  • South Carolina’s biggest insurer already controls over 65 percent of the entire market. If small insurance companies are prevented from offering flexible, competitively priced, consumer-oriented plans, the private market is highly unlikely to become more competitive. 

The (extended) deadline for states to declare whether they will set up their own exchanges is December 14, 2012. But South Carolina’s governor, in mid-November,  informed the U.S. Department of Health and Human Services the state would not establish its own exchange. Nearly half of all states have rejected the state exchanges so far.

Confusion has surrounded the question of Medicaid expansion, too. How can the state choose whether or not to expand Medicaid after the Supreme Court ruled Obamacare constitutional and after the governor has said the state will not establish its own exchange?

The issue of Medicaid expansion, too, has been fraught with confusion. Here are the relevant points:

  • Under the ACA, states have the option of expanding Medicaid eligibility to those with incomes of up to 138 percent of the poverty line – that is, $23,344 for a family of three.
  • For the first three years starting in 2014, the federal government will cover 100 percent of the cost for states’ Medicaid expansion, while dwindling down that percentage to 90 percent by 2020, leaving states accountable for 10 percent of the cost from that point forward.
  • If all states were to enact Medicaid expansion, federal Medicaid spending would increase by $952 billion through 2022, while state Medicaid spending would increase by $76 billion through 2022.
  • Over the next ten years, South Carolina would see a $1.5 billion or 7 percent increase in state spending and $17 billion or 31.9 percent increase in federal spending on Medicaid if it were expanded compared to current baseline growth.
  • It was only two fiscal years ago that our state hid a $220 million Medicaid deficit, so this increase in spending will make it even more difficult to keep out the red ink in the state’s Medicaid budget.

Bear in mind, too, that these federal dollars wouldn’t be “free.” Federal money always comes with regulations and restrictions, just as it did in 2007 when the state accepted federal stimulus dollars and then was barred from auditing Medicaid roles for fraud. South Carolina’s Director of Health and Human Services, Tony Keck, stated last week before the Senate Medical Affairs Committee.

The bottom line is that accepting yet another Medicaid expansion would be “easy money” in the short term, but South Carolina taxpayers – who, remember, pay state and federal taxes – would pay dearly for it in the long term.

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