A Medicaid opportunity

The Congressional Budget Office recently estimated that 30 million Americans still will be left without health insurance in 2022, after the U.S. Supreme Courtruling that largely upheld President Obama’s healthcare plan. The part of the plan that was not upheld by the high court, however, contains the key to lowering that number.

The issue revolves around what it means to be covered by health insurance, and who decides. Before the Supreme Court’s ruling, the answer was unambiguous. Medicaid (known as Medi-Cal in California) is a program paid jointly by the state and federal governments, but only the federal government had the authority to say what kind of coverage was sufficient. If a state, for example, wanted to cover more people by cutting out more expensive kinds of treatment, a federal waiver was required — and seldom given.

But under a reasonable interpretation of the court’s recent decision, that might no longer be true. If California wants to cover more of its residents without health insurance but with a more plain-vanilla kind of coverage, for example, it should now be able to do so.

In a part of the opinion that commanded seven votes of the nine on the court, both liberal and conservative justices agreed that states could not be coerced into paying for the expansion of Medicaid required by the healthcare law. The court held it was coercive to threaten a state with losing federal financial support, not only for the expanded coverage but for all existing Medicaid. So states were left free to add the coverage or not: If they didn’t, there would be no loss of federal financial help for current Medicaid patients; if they did add it, they would receive more than 90 cents on the dollar of any new costs (at least for now). Some states have announced they will accept the expansion; others have said they won’t.

The Supreme Court’s rationale, however, holds significance for a much broader question: What might there be in the existing Medicaid rules that could also be held to constitute coercion? The governor of Maine contends that if his state wants to limit eligibility for Medicaid, to save state dollars, it has the right to do so without having to get a waiver from the federal government or losing any federal funds it now gets in proportion to the level of coverage. Maine will pay its share, and the federal government should pay its too, for the smaller amount of coverage. Anything else, according to his argument, constitutes coercion, and the logic of the Supreme Court ruling should strike it down.

The federal system allows states to choose to opt in to some provisions beyond the basic Medicaid coverage, and for many years, California said yes to all of them. It seemed to many in state government a good deal: Low-income adults would receive dental care, for instance, with the state and Washington splitting the costs 50-50.

The point has been reached, though, where some states are rethinking whether that’s a good deal. If the costs are too high, even paying half of it might still not work out as a bargain. That is the potential opportunity for change in states’ healthcare costs offered by the Supreme Court’s decision, not just for the optional coverage but for the basic. Before the ruling, there was nothing to bargain about: The states had to cover those the federal government deemed eligible, for conditions the federal government said had to be covered. Now, the states have some leverage.

Suppose California chose to use that leverage. Between the federal and state governments, we spend about $40 billion for acute and chronic healthcare for the needy in California, not counting support that goes directly to hospitals, according to the Kaiser Family Foundation. Divide that by the number of Medicaid recipients in California, about 8 million, and we derive an average of $5,000 per person for coverage. If the state wanted to cover this same population with a high-deductible, family option health plan, its cost in California would be under $3,000 a year per recipient, using data from a California HealthCare Foundation survey. With that $2,000 average saving per recipient, the state would have almost $16 billion to use for those not yet covered, enough to buy the same plain-vanilla coverage for 5.33 million of those without coverage at all.

Is that approach so lacking in compassion that the federal government must forbid it? And if the state of California chose to use such projected savings for other needs (like community colleges or lowering tax rates to attract more jobs), must it be forbidden by law from doing so? The Supreme Court’s opinion has opened a new day in state-federal relations; and it is for us Californians to seize that day.

Tom Campbell is dean of the law school at Chapman University. He was California’s state finance director in 2004-2005, a state senator and a five-term U.S. congressman.