Since the US Supreme Court afforded states the right to forgo Medicaid expansion under the Affordable Care Act, without losing all of its federal funding, many Republican governors have exercised their right—at least rhetorically—to opt out of such expansion.  While the Supreme Court’s decision on the Affordable Care Act (hereinafter the ACA) allowed the federal government to place strings on money it gives to states as part of Congress’ spending power, affirming precedent from South Dakota v. Dole, inter alia, the Court ruled that the federal government cannot tie existing funds to Medicaid expansion.  Only additional Medicaid funding incurred by expansion under the ACA can be subject to revocation, since past attachments were “relatively mild encouragements” consonant with the judicial test of coercion.  In other words, the Federal government maintained its carrot to coerce, but lost its stick.  “So although the Obama Administration lost on this issue, it’s probably a loss that it is willing to live with for now, as few states (if any) are ultimately expected to turn down the new Medicaid money, even with the strings,” writes Amy Howe of SCOTUSblog.com.  The prevailing thought was that only insensate ideological zeal would move a governor to turn down such an offer.  However, as we move past the Court’s decision and thus gain critical distance from it, is this really the case?

Providing Medicaid coverage for virtually all poor and middle-income Americans—up to 133% of the federal poverty line—under the age of sixty-five is a significant expansion from what the federal government requires currently.  Under Medicaid, states design their own programs within bounds established by federal regulations, with the federal government paying for a large share of the expenses.  Although the formula is complicated, the more a state spends, generally, the more the federal government contributes—with diminishing returns to prevent abuse.  Thus, with the goal of providing near-universal healthcare coverage under the Medicaid formula utilized currently, politically conservative states stand squarely in the center of Congress’ approach, since they can expand for cheaper at the margins than a generous, liberal state (which covers more of its citizens).  Congress’ approach “was essentially to make Red America an offer it couldn’t refuse.”  That offer was an agreement by the federal government to front 90% of the expenses under the new scheme.

But in recent days, Democratic governors have joined the Republican chorus by expressing misgivings about Medicaid expansion vis-à-vis their state budget projections (though of course the former have done so less vociferously).  Governor Dave Heineman of Nebraska said pointedly that his cash-strapped state had no room for such expansion—it was a stark choice between funding the state’s flagship higher education institution, the University of Nebraska, or Medicaid expansion, and he preferred unequivocally the former.  Many governors think it prudent to wait until after the election in November 2012 to render a decision on Medicaid expansion, given Mitt Romney’s commitment to repealing and replacing the ACA.  Yet, how do we explain the concurrence of recent Democratic suspicion regarding Medicaid expansion? It is difficult to tell whether this is simply another consequence of election year politics and the unwillingness to be linked with an unpopular sitting President.  The fact that Democratic governors have bemoaned Medicaid expansion quietly, however, appears to indicate something else is at work.

The answer, I believe, is no secret: governors understand the unknowable factor in this situation is the rising rate in healthcare costs, expected to continue to rise through the decade (with the ACA doing little to curb cost and possibly contributing to rising costs).  Thus, the federal government’s promise to pay 90% of the bill may seem tepid and unpersuasive in the face of rising costs.  What is more, it may seem ineffectual to use Medicaid as a means of achieving universal coverage, given its reputation for stingy reimbursements to providers may result in a lack of coverage or poor coverage for those utilizing it.  There are also further logistical questions impeding a governor’s decision on Medicaid expansion: does a state that opts in have the option to opt out later, should its budget swell? Do states that chose to opt-in late still receive the 90% guarantee from the federal government? May a state chose to participate partially, for instance, by cutting the qualifications for subsidization somewhere lower than 133% of the federal poverty line? These questions will dominate the meeting of the National Governors Association, commencing this weekend in Williamsburg, VA.  For now, the great irony is that the reason Democrats in the House and Senate chose Medicaid as the vehicle of healthcare expansion—the issue of cost, specifically, to earn a lower cost analysis for the ACA from the Congressional Budget Office—may drive governors of both political parties to forgo Medicaid expansion and instead invent new ways of expanding coverage through existing state programs.