Supreme Court Narrows Medicaid Expansion but Upholds Commercial Mandate

By Jill Brown, Executive Editor

June 28, 2012

Although the Supreme Court upheld the reform law’s individual mandate as a tax — and thus the provisions’ effect on the commercial insurance market — its ruling on Medicaid could have the effect of maintaining a class of uninsured people who have income too high to qualify for Medicaid but too low to afford commercial insurance on exchanges, even with subsidies.

The high court said the individual mandate “may reasonably be characterized as a tax. Because the constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.” And with that ruling, the court upheld all the elements of PPACA that could be said to hinge on the individual mandate, including the exchanges, guaranteed issue, modified community rating, medical loss ratio minimums, employer penalties and other provisions.

After months — and, for some stakeholders, years — of having a dual focus on both complying with the law’s myriad requirements while contemplating how to unwind them if the law is struck down, implementation now starts in earnest.

But the court found that the law did go too far in allowing HHS to withhold all Medicaid funding from states that don’t expand program eligibility by 2014 to adults with annual incomes up to 133% of the federal poverty level. The high court rejected HHS’s ability to withhold all Medicaid funds, terming this “economic dragooning that leaves the States with no real option to but acquiesce in the Medicaid expansion.”

Today, “many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all,” the decision noted. And that may remain the status quo, as many states, facing budget deficits, would be free to decline to further expand Medicaid. That’s because the high court ruled that the constitutional violation “is fully remedied by precluding the Secretary from…withdraw[ing] existing Medicaid funds for failure to comply with the requirements set out in the expansion.”

The law calls for the federal government to pay 100% of Medicaid expansion costs from 2014 to 2016, with the contribution level gradually dropping to no less than 90%. Mark Lutes, a member of Washington, D.C., law firm Epstein Becker Green, says that “red states have some interesting choices — one is, do you take Medicaid expansion money while it lasts and trust Congress to make you whole when the ACA support for it dries up?”

But Alan Weil, executive director at the National Academy for State Health Policy, predicted that “most states will go ahead” with the coverage expansion. “Even without the stick [of withholding all Medicaid funding], there’s still a very strong carrot” in the form of a “very favorable match rate. And I think providers and citizens will find it hard to understand why a state would leave all these people uninsured if they have an opportunity to provide them with coverage at no state taxpayer cost.”