02/17/2012 04:00 pm ET | Updated Apr 17, 2012

States Shocked, Shocked at Medicaid Expansion

Briefs are beginning to pile up in the Supreme Court decrying or defending the constitutionality of the Affordable Care and Patient Protection Act, known in my circles as the ACA but to headline writers across the country as Obamacare.

For us wonks, there is a lot to wade through already. My particular focus has been on the challenge 26 states have brought to the ACA's expansion of the Medicaid program. The National Health Law Program has been working on Medicaid issues for more than 40 years, and this week we are filing a brief in the Supreme Court defending the expansion.

I don't deny that the case raises constitutional questions, but as I was reading the states' argument that the extension of Medicaid is an unconstitutional "coercion," all I could think of was the scene in Casablanca when Captain Renault -- Louis -- announces that he is closing Rick's American Café immediately.

"How can you close me up? On what grounds?" a skeptical Humphrey Bogart (Rick) asks.

"I am shocked --shocked!-- to find that gambling is going on here!" the captain replies, as one of Rick's employees approaches discretely.

"Your winnings, sir."

States won big with the ACA. To understand how big, it helps to understand a bit about how Medicaid works.

Medicaid is a voluntary program that uses federal matching funds to encourage states to provide health insurance to certain people who are unable to obtain it. Depending on the state and the service, the federal government covers between 50 and 100 percent of the program's costs; the rest comes from the state. Poor states get more federal help.

To get the federal money, states have to cover certain people and certain services. They are allowed to cover more people and more services consistent with Medicaid's goals if they want to, but the federal government does not require it; it merely sets the floor.

That "floor" has moved over time. Currently, the federal Medicaid floor requires states to cover basic services for low-income children, pregnant women, adult caregivers (mostly low-income parents), the elderly, and people with disabilities. ("Low income" is defined as a percentage of the federal poverty level; last year, it was $10,890 for a single person or $18,530 for a family of three.)

If states want to cover pregnant women up to, say, 150 percent of the federal poverty level, or people with disabilities up to 200 percent of the poverty level, or include eyeglasses or adult dental care or personal care services -- none of which are required by federal law -- they can do so, and the federal government will cover at least 50 percent of the costs.

States are upset because the ACA raised the floor. By 2014, states taking federal Medicaid funding must provide insurance to all adults under 65 making less than 133 percent of the Federal Poverty Level (last year, $14,500 for a single person, or a monthly income of $1,208) -- not just the disabled, pregnant, and caregivers.

This is hardly the first time -- and likely not the last -- that the federal government has moved the Medicaid floor. But this time it came attached to a political chew toy. So...

"We are shocked, shocked that the federal government would coerce us into expanding our programs!" the states told the court (in so many words). "Washington has us over a barrel because we really like its money, but can you believe what it's asking us to do? Do you know how much of our state budget we already devote to this program?"

Where do I start?

First, the Medicaid extension in the ACA is hardly radical, or even novel. In fact, well before enactment of the ACA, the 26 states before the Court had already opted to expand their Medicaid programs to population groups with incomes well above 133 percent of the federal poverty level, and 18 States -- including several before the Supreme Court now -- had received federal permission to extend Medicaid to nondisabled adults.

As for how expensive the program already is, there too states would do well to shake their collective finger at a mirror. According to the Kaiser Family Foundation, just over 60 percent of spending on Medicaid is attributable to program options that the states have selected beyond what is required by the federal law. The states should not be heard to complain now that the program is coercively expensive when it is their own choices that are driving that spending.

And then, of course, there is the fact that the federal government is picking up almost the entire tab. For the first few years, the federal government will cover 100 percent of the costs associated with Medicaid's expansion. After that, it will pay less and less, until it is only covering... 90 percent of the costs.

In exchange, states will be forced to deal with fewer sick days and costly emergency room visits, lowered rates of chronic and preventable disease, and an overall healthier population. Oh, and they'll lower their costs too -- but more on that later.

Your winnings, sir.