07/18/2012 02:55 pm ET | Updated Sep 17, 2012

Medicaid Expansion Ruling's Intricacies and Impact

Now that the dust has settled after the Affordable Care Act (ACA) was approved late last month, it has become increasingly clear that the Medicaid expansion part of the law the Supreme Court softened is not going to be able to cover as many people as needed. The Supreme Court ruled that Medicaid expansion in the states should be optional and states should not lose existing Medicaid funding by declining to expand. With Medicaid expansion lacking teeth, millions could be left without coverage or face more financial burdens.

The Supreme Court demurred on the ACA's requirement that states expand Medicaid to cover everyone below 138 percent of the federal poverty level. Subsidies to buy private insurance under the ACA, which are available to people between 100 percent and 400 percent of the federal poverty level, would help alleviate some of the lost potential coverage. But last week the Urban Institute came out with a study saying that 11.5 million people not currently eligible for Medicaid and below the federal poverty level would not receive assistance without Medicaid expansion. Earlier work by the Urban Institute revealed just how many people are going to be affected by the Supreme Court's decision. Of the 22.3 million uninsured people who would be potentially eligible for Medicaid (under 138 percent of the federal poverty level), there are four times as many people who are below 100 percent of the poverty level than between 100 percent and 138 percent. Thus many more people depend on Medicaid expansion than on subsidies but may not get coverage. Luckily, President Obama recently announced that low-income residents in states that choose not to expand Medicaid will not face the mandate's tax.

The lot of people between 100 percent of the poverty level and 138 percent of the poverty level is better but not much better. In states where Medicaid is not expanded, the Urban Institute study states, "(E)ven among those who do qualify for exchange subsidies and take up that coverage, the greater cost-sharing requirements for exchange coverage than in Medicaid means that these adults will experience greater financial burdens associated with meeting their health care needs." According to Lisa Dubay of the Urban Institute, cost-sharing requirements for those in states that don't expand Medicaid could prove to be onerous. "For people at 100 percent of the poverty line, they're going to have to pay something to get their premiums, so they're going to have to contribute 2 percent of their income towards their coverage," she said. "And people at the other end, 137 percent of the federal poverty line, they're going to have to contribute 3 percent of their income. (T)hat's part of the cost-sharing so they're going to have to pay for the insurance where they wouldn't have to pay for it if it was Medicaid." The lack of protections without Medicaid could especially impact parents with sick children or those with high health care costs, Dubay said.

The complexity of Medicaid expansion and subsidy eligibility has caused much confusion. The often-cited 133 percent level ignores the five percentage points of "poverty income disregard" the ACA will enact by standardizing deductions from income, which determines eligibility. Really, people below 138 percent of the poverty level will be eligible for Medicaid. And one prestigious outlet reported that people between 100 percent and 138 percent of the poverty level are ineligible for subsidies but might be left in the lurch without Medicaid expansion. According to Dubay, those people would be eligible for subsidies.

Yet many health care experts understand the details of the dilemma and the human impact of those details. In an opinion piece for The New York Times, Dr. Richard A. Friedman of Weill Cornell Medical College highlighted the predicament low-income, mentally ill people might face without Medicaid expansion. They might be caught in between eligibility for Medicaid and eligibility for subsidies. In an e-mail, he wrote, "The reason is that the Medicaid cut-off is often below the federal definition of poverty. So you could 'qualify' as poor, but not be Medicaid eligible. In that case, you would not make enough to qualify for federal subsidy... but too much to get Medicaid."

Dubay explained the bulk of those below the federal poverty level but not be eligible for Medicaid are childless adults. "Medicaid was sort of designed for the elderly, disabled (elderly and non-elderly), and then parents with children, initially single parents with children," she said. "But most states didn't cover childless adults. And most states covered parents at a level much lower than the poverty level, so that's why there's some variation there. So states... had a lot of discretion over where they were going to set their thresholds for parents and whether or not they were going to cover childless adults. And it was very challenging to cover childless adults through the Medicaid program because they're not categorically eligible."

For those states that participate in expansion, the federal government is set to pick up 100 percent of the bill for a decade, until it pays 90 percent of the costs in 2020. Hospitals have been pushing states to expand Medicaid as the Medicaid program will not be sending money to hospitals to make up for uncompensated care in the future. Hospitals will need people to have insurance to be compensated without the special funds. Yet even this powerful lobbying group may not be persuasive enough to convince some governors to go ahead with expansion.

Whether or not it is rational to turn down federal funding to expand Medicaid when so many people could benefit -- and indeed depend on it for coverage -- is open for debate. Many see Republican governors' promises to block Medicaid expansion as overtly political. Some even state that there is a potential multiplier effect to Medicaid expansion, and thus it makes quite a bit of sense to sign on. Others, like Peter Orszag, Obama's former budget director, assume that even recalcitrant states will eventually expand Medicaid after the posturing is over, just as they expanded Medicaid over the years to go beyond the parts that were federally required.

While progressives rightly celebrated the Supreme Court's decision in late June, as more details emerge, it must be considered a Pyrrhic victory if many of the uninsured the law was drafted to protect will go without the coverage they need. As Dubay said, "What's particularly important that states don't understand is that they're leaving out the most vulnerable population in the state while protecting those with higher incomes."