The changing landscape of Medicaid: practical and political considerations for expansion.

It has long been anticipated that 2014 would be the year in which most major elements of the Patient ProtectionandAffordableCareActof2010 (ACA)wouldbe implemented.1 Yet even after surviving legislative, judicial, and electoral challenges, what the law actually will accomplish is uncertain. A major reason is the prominent rolegiven to the statesover the implementationof the ACA.2,3 State flexibility is a double-edged sword. By shifting some difficult decisions from the federal government, statescantailorhealth reformtotheneedsof their stakeholders. But implementing reform through the states increases the number of elected officials able to influence implementation. Between June 2011 and February 2014 we conducted 152 interviewswith leaders in 25 states about 2 major ACA-related decisions: whether to create a state health insuranceexchangeandwhether toexpandMedicaid eligibility.3 Neither decision was part of the version of reform that President Obama preferred, which included a national exchange andmandatoryMedicaid expansion. The opportunity for each state to create an exchangewasseenasa formof “conservativemeans to liberal ends,”3 allowing the country tomove closer to universal coverage through a state-level market-based mechanismfavoredbyconservativepolicyexperts.Similarly, many commentators and scholars suggested that theMedicaid expansionwould be so beneficial that every state would ultimately comply. The federal government is paying for 100%of theMedicaid expansionuntil 2017 andphasingdown to90% in2020. Statepolicy makers were expected to respond to pressure from local stakeholders to accept Medicaid expansion. Hospitals and health care practitioners want to reduce uncompensated care, whereas the business community wants to reduce cost-shifting of uncompensated care onto charges to private payers. Yet by January 2014 only 15 states and the District ofColumbiahadchosen to fully complywith theACAby creating a state-basedexchange andexpandingMedicaid, whereas 23 states took neither of these steps (Table). These decisions have followed partisan patterns.All but2of the 15 states that fully compliedare led by Democratic governors, and all but 3 of the 23 states that did not expand Medicaid or establish a statebasedexchangeare ledbyRepublicangovernors. In the 2012election,PresidentObamawonallbut 1of thestates thathave fully compliedand lost all but5of the23states that havenot fully compliedwith theseACAprovisions. However, partisanship is an incomplete explanationobscuring theunderlyingpoliticaldynamicsatwork. Ten stateshavechosen toexpandMedicaidbutnot create an exchange (Table), including 6 led by Republican governors. This difference is not surprising, given that much more federal funding is at stake with the Medicaid decision. By comparison, Idaho is the only state to forgo theMedicaid expansionbut create a stateorpartnership exchange. Thepolicy implicationsof thesedecisions are enormous. Nearly 2.6million Americans in the 25 states not expandingMedicaidwill fall into a coveragegap.5 These peoplewill be toopoor to receive subsidies through the exchange butwill have incomes too high to permit participation in Medicaid. One approach for increasing the number of states expandingMedicaidmaybe for theObama administration to allow states to use waivers to incorporate more local elements in the program. Stakeholders indicate it will be easier to convince resistant legislators to consider reforming rather than simply expanding Medicaid. Michigan is a good example of this view.6 This approach could allow state-requested changes to the Medicaidprogramwithoutcongressionalapproval.State legislaturesoftenmustbe involved, but theprimarynegotiation takes place between the executive branches of the federal and state governments as governors apply to the Centers forMedicare &Medicaid Services for waivers. Five states have taken the lead in this movement. Arkansas, Iowa, and Michigan have sought Medicaid waivers aspart of their expansion,whereas Indiana and Pennsylvaniaaremoving toward thispath.Arkansaswas the first state to seek a new waiver specifically connected toMedicaid expansion, receiving approval to allownewMedicaidenrolleestoshopforcoveragethrough the health insurance exchange. The creation of a “private option” in Arkansas opened the door to alternative proposals in other states. Iowa later adopteda similar plan, although it added a focus on increased cost-sharing for certain segments of their new beneficiaries. Michigan’s and Pennsylvania’s waivers also included cost-sharing for new enrollees starting at 100% of the federal poverty level. Indiana is seeking to extend and expand an existing waiver to include cost-sharing for all new enrollees. New enrollees in these statesmust contributebetween2%and 7% of their annual income toward their medical expenses. Iowa,Michigan, and Pennsylvania have also included financial incentives in their waiver applications to allow new beneficiaries to reduce their cost-sharing by engaging in healthy behaviors. Furthermore, Pennsylvania includes a provision that—if approved—would reducecost-sharing forbeneficiarieswhoactivelysearch for full-time employment and participate in employment training programs.7 VIEWPOINT