Medicaid Expansion: Will Holdout States Take the Current Administration’s Bait?

The American Rescue Plan recently signed into law includes an incentive to encourage states to expand Medicaid. Will any of the 12 holdout states broaden their program for the needy, or do political divisions run so deep that compromise is out of the question?

President Joe Biden has signed the $1.9 trillion American Rescue Plan into law. While framed primarily as a COVID-19 relief plan, it is designed to deal with the economic fallout from the coronavirus pandemic, which is entering its second year. The law includes a number of provisions, including those designed to alter the Affordable Care Act (ACA), even if only temporarily. Most ACA changes will be in effect for 2 years, which enables architects to label them as pandemic relief and limit detractors from claiming they go beyond the scope of COVID-19 rescue. 

One of the plan’s measures encourages the 12 states who have yet not expanded Medicaid to do so. The encouragement comes in the form of a 2-year increase in matching federal funds to cover both existing Medicaid enrollees and the cost of expanding. Until now, the federal government has been covering 90% of costs for states who agreed to expand. The holdout states have cited cost as a chief reason they have resisted expansion. The Biden administration is hoping the newly added measures may tip the scale and be just what is needed to nudge some of the 12 states over. 

The question is, will it work? Or is the nation so deeply divided along political lines that compromise is out of the question?

Too Good to Pass Up…

The incentive might be too good to pass up for some states, (in late March, Wyoming’s Republican House Speaker signaled a willingness to expand, only to be rebuffed by members of his own party) but not all of them, said Melissa Andel, principal with CommonHealth Solutions in Washington, DC. “Several nonexpansion states have argued that the federal government funding is finite, and eventually ends. I’m not sure that an additional two years of funding is enough to counter that, especially in states like Texas and Florida, where the governors are influenced not just by policy but also by national politics.”

Arthur Shinn, PharmD, president, Managed Pharmacy Consultants in Lake Worth, FL, agreed. “Florida and Texas are hardcore conservative states that will not want to align themselves with the ACA no matter what the incentive is. But there are some less conservative leaning states that have not yet expanded Medicaid that might use this opportunity to do so.” 

Fiscal necessity might dictate such, noted Edmund J Pezalla, MD, founder and CEO, Enlightenment Bioconsult in Hartford, CT.  “For one thing, states’ economies, budgets, and tax revenues have been hurt by COVID. The federal payments are too good to pass up and expansion will rescue some providers, including hospitals. Additionally, it will be a popular move at a time when many residents are not happy with the way their states have handled COVID.” Dr Pezalla said it is difficult to predict which states might take the bait, but—unlike Ms Andel and Dr Shinn—he thinks Florida is in play because “the governor may be looking to run for federal office and he needs do something popular while at the same time trying to keep his base on the right.”

F Randy Vogenberg, PhD, RPh, principal, Institute for Integrated Healthcare, Greenville, SC, had a different take on who would go for the incentive. “It will be tough on certain states to pass on so much money to support expansion.” He cited Wisconsin and North Carolina; states run by Democratic party governors where Medicaid has not yet been expanded. “They are arguably failing economically and, thus, in need of federal government support.” 

Daniel Sontupe, associate partner and managing director at The Bloc Value Builders in New York, NY, said he is tired of good health care taking a back seat to politics. “Most of us involved in health care are trying to do good. I’m afraid that politics is not about doing good. It is about doing what my party wants and what gets the nomination. The numbers that we read in the bill—the surplus that it creates for the withholding states to finally expand Medicaid—should move each state to help cover their weakest constituents. However, it seems that the party line will win.” 

Mr Sontupe added: “I can’t imagine being a Texan and realizing my state passed up a surplus of nearly $6 billion, just because a Democrat wanted to give it to them.” Indeed, a Texas A&M study released last fall noted that even without the recent Biden incentive, the state would receive $5.4 billion in federal funds if it chose to expand Medicaid. That number now rises with the added incentive. Moreover, a separate study found that Texas would save more than $50 million per year if it elected to expand. Both studies were cited by the Texas Medical Association as reasons to expand. 

…Or Are Political Divisions Too Deep? 

The question is, are holdout states such as Texas cutting off their proverbial noses to spite their faces, or are they right to stand their ground in this way? “Just look at how states like Florida and Texas have gone about managing their responses to COVID with respect to national politics and scientific recommendations. The same could be said for any number of the non-expansion states,” explained Ms Andel. She said she agreed with Dr Vogenberg that Wisconsin and North Carolina are in play. But she disagreed with Dr Pezalla on Florida. “I don’t see any world in which [Florida Governor] Ron DeSantis, who certainly has his eye on [running for president in] 2024, expands Medicaid. The same goes for Texas, whose governor instituted a high-profile roll-back of COVID social distancing. He is unlikely to turn around and suddenly change his mind on Medicaid, no matter how badly the hospitals in his state want him too.”

According to Dr Pezalla, “The decision will be a political one. A state’s elected officials will have to weigh the impact of new funds on the state economy and making a move that is popular overall against issues that their base may raise. If they feel strongly connected to the base, they may feel that they can move ahead.” He added that “Some states might ask for restrictions or full federal payment for two years so that they can say they negotiated something important.”

“Leaders should be able to get in a room and hash out the best decision that will help the people they lead,” explained Mr Sontupe. “That is not how our system should work. But our leaders do not want to upset their base. Which means doing good or doing right takes a back seat.”

Dr Vogenberg said that states might decide to pass on the incentive because of uncertainty due to the pandemic—there are too many other priorities to focus on and, besides, the expansion concept is worrisome to him. “This is a house of cards very similar to the game played in Massachusetts that led us into the ACA mess we are still dealing with years later.”

Dr Shinn agreed. “I am not sure this is the right direction to go. Does this really lower overall health care costs, or just shift costs around? That argument has been going on since the ACA was passed. Things are more politicized than ever, so that question is not going to go away.” 

The Spend for States Might Still Be Too High

While no one can deny that politics plays a role in just about everything in Washington and in state capitals, states could be reluctant to spend the money, even if their share shrinks to 5% temporarily. In the aftermath of COVID, are the holdout states willing and able to fund even a small percentage of Medicaid? 

“State budgets have been decimated by COVID, so it will be interesting to see how the battle between the hospitals, who want expansion, and states plays out,” said Ms Andel. Dr Pezalla reiterated that it may come down to
states negotiating. “States may take the short term [incentive] and figure that they can
manage in the long-term if they are allowed to have extra restrictions or rules that would help them limit the amount of coverage [they offer] in the future.”

Dr Vogenberg said he worries not about the first two years, but what happens after that. “This has the potential to result in a financial debacle for many states who don’t have the economic wherewithal to sustain Medicaid costs after the federal government’s extra help expires. Some states might be pushed into technical bankruptcy. The national debt
will grow and the endless cycle of federal bailouts will continue.” 

On the other hand, an unwillingness to invest might be short-sighted, said Mr Sontupe. “Recovery from the pandemic is a big reason why states should invest more in covering their sick. It might help prevent the incredibly high death rate of those in poverty when the next pandemic attacks.”

Fulfilling a Campaign Promise

President Biden campaigned on the promise to add to the ACA the option to buy into a Medicare-like public health plan—sometimes called the public option. This public plan would then act as an automatic default program in states that chose not to expand Medicaid, with the needy being enrolled at no cost to them. But the prospects of passing the necessary legislation in a divided Senate are questionable, at best. Thus, it appears this relief package is the president’s best chance at expanding Medicaid, said Ms Andel. “Barring complete self-destruction by the GOP, Republicans will take control of Congress in 2022, thanks to redistricting and the fact that historically, first-term midterms have been brutal for the party in the White House.”

Dr Vogenberg agrees. “The odds are very low that Biden will have a second term, and I agree that Congress will likely flip to Republican.” The public option, he noted, has no chance. “We do not have clear direction on what it would look like, and dealing with COVID and its aftermath is the priority.” 

Dr Pezalla said that he thinks it is best to look at Medicaid expansion and the public option separately. “Medicaid expansion is all about reducing the number of uninsured, whereas the public option is about affordability and choice.” Moreover, “Medicaid expansion is a matter for the states to decide, [whereas the] public option would be [run] at the federal level.”

Dr Pezalla said that he sees how a Medicaid expansion success could pave the way for the public option. “If there is success in getting remaining states to expand Medicaid that will be a policy win. The number of uninsured would drop and may provide political capital for a public option.” 

Is Compromise a Fantasy Notion?

President Biden also campaigned on his ability to reach compromise. The question is would his administration be willing to let states who now choose to expand Medicaid limit who qualifies for it, allow block grant programs, or implement other options? These compromises are not what some Democrats have in mind now that they have control of the White House and Congress. But President Biden could have other ideas. 

“The Biden administration has not been shy thus far at bucking the more liberal wing of the party, offered Ms Andel. “It has telegraphed that it is willing to consider some of the more conservative policies that the Trump administration allowed. I could see the Biden administration agreeing to compromise in order to get additional people covered.” But that is only half of the equation—it takes two willing sides to compromise, she noted. “I don’t see where a Republican governor makes an agreement to expand Medicaid with a Democratic president when they didn’t do that with a Republican administration. That political calculus doesn’t really make sense.” Dr Vogenberg agreed, citing the aforementioned likely flip of Congress in 2022.

As for the block grant concept, Dr Pezalla said it is likely to go nowhere, given its uncertain history. Plus, block grants give the states too much autonomy over federal dollars without much oversight. Besides, “an overall goal [of Medicaid expansion] is to avoid too many differences between states to reduce both economic and equity issues. Economic because many of the holdout states have high income gaps, and equity because it may interfere with attempting to provide a minimum benefit to all populations.” 

Ms Andel said she is encouraged by the tone brought by the new administration and Senate majority, but is nonetheless worried that there is nothing to be done about polarization. “It does seem that while they are certainly working to bring more of a regular order back to Washington DC, it hasn’t become part of the broader discourse yet. And that makes me wonder whether things have gotten so polarized that it will be difficult to achieve real progress on anything.”

Which would be a shame, noted Mr Sontupe. “There should always be room to compromise. In this case, if we don’t expand Medicaid, millions of people will not have health care and that will cost the system billions of dollars. So, it would be nice if our leaders decided to lead and make the right things happen.”