States weighing Obama health plan

WASHINGTON -- President Barack Obama thinks his health-care law makes states an offer they can't refuse.

Whether to expand Medicaid, the federal-state program for the poor and disabled, could be the most important decision facing governors and legislatures this year. The repercussions go beyond their budgets, directly affecting the well-being of residents and the finances of critical hospitals.

Here's the offer:

If states expand their Medicaid programs to cover millions of low-income people now left out, the federal government will pick up the full cost for the first three years and 90 percent over the long haul.

About 21 million uninsured people, most of them adults, eventually would gain health coverage if all states agree.

Adding up the Medicaid costs under the law, less than $100 billion in state spending could trigger nearly $1 trillion in federal dollars over a decade, according to the nonpartisan Urban Institute.

"It's the biggest expansion of Medicaid in a long time, and the biggest ever in terms of adults covered," said Mark McClellan, who ran Medicare and Medicaid under George W. Bush.

"Although the federal government is on the hook for most of the cost, Medicaid on the whole is one of the biggest items in state budgets and the fastest growing. So there are some understandable concerns about the financial implications and how implementation would work," McClellan said.

A major worry for states is that deficit-burdened Washington sooner or later will renege on the 90-percent deal. The regular Medicaid match rate averages closer to 50 percent. That would represent a significant cost shift to the states.

Many Republicans are unwilling to keep expanding government programs, particularly one as complicated as Medicaid, which has a reputation for being inefficient and unwieldy.

Awaiting decisions are people such as Debra Walker of Houston, a part-time home health-care provider. She had a good job with health insurance until she was laid off in 2007.

Walker was recently diagnosed with diabetes, and she's trying to manage by getting discounted medications through a county program for low-income uninsured people.

Walker estimates she earned about $10,000 last year, which means she would qualify under the income cutoff for the Medicaid expansion. But that could happen only if Gov. Rick Perry, R-Texas, reconsiders his opposition.

As Obama's law was originally written, low-income people such as Walker would not have had to worry or wait. Roughly half the uninsured people gaining coverage under the law were expected to go into Medicaid.

The middle-class uninsured would get taxpayer-subsidized private coverage in new insurance markets called exchanges.

But last year the Supreme Court gave states the right to opt out of the Medicaid expansion. The court upheld the rest of the law, including insurance exchanges and a mandate that virtually everyone in the United States have health coverage, or face a fine.

The health care law will go into full effect next Jan. 1, and states are scrambling to crunch the numbers and understand the Medicaid trade-offs.

States can refuse the expansion outright or indefinitely postpone a decision. But if states think they'll ultimately end up taking the deal, there's a big incentive to act now: The three years of full federal funding for newly eligible enrollees are only available from 2014 through 2016.

So far, 17 states and the District of Columbia have said they'll take it. That group includes three Republican-led states, Arizona, Nevada and New Mexico. Arizona Gov. Jan Brewer was prominent among GOP leaders who had tried get the law overturned.

An additional 11 states, all led by Republicans, say they want no part of it. Perry says it tramples states' rights.

The remaining states are considering options.

In some cases, GOP governors are trying to persuade balky legislatures led by Republicans. Hospitals treating the uninsured are pressing for the expansion, as are advocates for the poor and some chambers of commerce, which see an economic multiplier from the infusion of federal dollars. Conservative foes of "Obamacare," defeated at the national level, want to hold the line.

The entire debate is overshadowed by some big misconceptions, including that the poor already have Medicaid.

Many of them do, but not all. Medicaid generally covers low-income disabled people, children, pregnant women and some parents. Childless adults are left out in most states.

The other misconception is that Medicaid is so skimpy that people are better off being uninsured.

Two recent studies debunked that.

One found a 6 percent drop in the adult death rate in states that already have expanded Medicaid along the lines of the federal health care law. A second looked at Oregonians who won a lottery for Medicaid and compared them with ones who weren't picked and remained uninsured. The Medicaid group had greater access to health care, less likelihood of being saddled with medical bills, and felt better about their overall health.

Skeptics remain unconvinced.

Louisiana's health secretary, Bruce D. Greenstein, is concerned that the Medicaid expansion could replace private insurance for many low-wage workers in his state, dragging down quality throughout the health care system because the program pays doctors and hospitals far less than private insurance. He says the Obama administration and Congress missed a chance to overhaul Medicaid and give states a bigger say in running the program.

"Decisions are made by fiat," he said. "There is not any sense of a federal-state partnership, what this program was founded on. I don't feel in any way that I am a partner." The Obama administration says it is doing its best to meet state demands for flexibility.

But one thing the administration has been unwilling to do is allow states to partly expand their Medicaid programs and still get the generous matching funds provided by the health care law.

That could have huge political implications for states refusing the expansion, and for people such as Walker, the diabetes patient from Houston.

These numbers explain why:

Under the new law people making up to 138 percent of the federal poverty line, about $15,400 for an individual, are eligible to be covered by Medicaid.

But for most people below the poverty line, about $11,200 for an individual, Medicaid would be the only option. They cannot get subsidized private coverage through the new health insurance exchanges.

So if a state turns down the Medicaid expansion, some of its low-income people still can qualify for government-subsidized health insurance through the exchanges. But the poorest cannot.

In Texas, somebody making a couple of thousand dollars more than Debra Walker still could get coverage. But Walker would be left depending on pay-as-you-go charity care.

"It's completely illogical that this has happened," said Edwin Park, a health policy expert with the Center on Budget and Policy Priorities, which advocates for low-income people.

Federal officials say their hands are tied, that Congress intended the generous federal matching rate solely for states undertaking the full expansion. States doing a partial expansion would have to shell out more of their own money.

"Some people are going to be between a rock and a hard spot," said Walker.