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Decision Time For States On The Affordable Care Act



July 2nd, 2012

With the constitutionality of the individual mandate—and with it, almost the entire Affordable Care Act—now established, the implementation ball has been returned squarely to the states’ court.  The highly variable state responses to the law—ranging from fully embracing to fully rejecting, with the vast majority of states somewhere in between—now have implications for the country that will soon become crystal clear.  State decisions over the next couple of months will define ACA implementation in 2014 and for many years to come.

As a practical matter, states face the same choices they did a week ago, with one important addition related to Medicaid (to which I will return in a moment).  The most visible choice has been and remains whether to establish a health insurance exchange or to defer to the federal government in this task.

But successful implementation of the law has always hinged on a far broader range of activities.  Shortly after enactment, state leaders identified ten categories of work necessary for effective implementation, which the National Academy for State Health Policy has broken down into 109 milestones for states to consult as they implement the law.  For states, the most important result from the Supreme Court’s opinion is that federal health policy is essentially unchanged and that all of the planning and work states have done thus far remains valid, applicable, and in force.

Much Work And Little Time For States

There is a great deal of work to be done, and quickly.  Notably, in less than five months—November 16 of this year—states must inform CMS of their intention regarding whether to set up a state-based health insurance exchange, defer entirely to the federal government with a federally-facilitated exchange, or share responsibility through a state partnership exchange.  State submissions by this date must include exchange blueprints, which demonstrate readiness in thirteen areas, ranging from eligibility and enrollment infrastructure to qualified health plan certification and oversight.

Informing CMS of the state’s intention is just one step, as states that choose to take on active implementation roles will need to carry out the functions they commit to in time to accept exchange enrollees by October 1, 2013, and begin providing insurance coverage on January 1, 2014. These dates will present a challenge even to states that have been preparing since the ACA’s enactment, and will be even harder for those that have not.  Fortunately, the latter states may be able to cut some time off their implementation schedules by relying upon work done by the leading states or focusing their attention exclusively on a partnership model.

The list of activities that states must undertake to achieve effective implementation of the law goes far beyond exchanges, encompassing Medicaid eligibility, private insurance regulation, provider and health plan capacity, and others. States that are entirely passive will likely find that federal policy does not mesh well with the circumstances within their state, and the state’s citizens will be the ultimate losers. Even those who strongly oppose the law will presumably want to avoid unnecessarily negative consequences for their own citizens.

Governance challenges now become the most significant impediment to states achieving an implementation design that best meets their citizens’ needs.  State governments are complex organisms with multiple actors and shared jurisdictions over policy and purse strings. The past two years have been characterized in part by conflicts among the many state-level actors who have a say in how the state approaches implementation. Governors, State Legislators, Insurance Commissioners (in particular the 12 who are independently elected), and Attorneys General have often not seen eye-to-eye regarding the law.

Where political leaders do not share a vision with respect to implementation, each state-level decision becomes a battle over control as much as a debate over substance.  The commodity now in shortest supply is time.  States that have established structures and processes that can rapidly make decisions, pursue grants, engage stakeholders, and relate to the federal government, will be well positioned to define their own future.  States that dither will defer to the uniform national approach of the federal government out of necessity—not out of choice.

Implications For States Of The Supreme Court’s Ruling On The ACA’s Medicaid Expansion

Which brings us back to the one major change for states in the wake of the Supreme Court’s decision—the finding that the Medicaid expansion, as designed in the ACA, is unconstitutional.  The legal implications of this finding are explored more completely in Sara Rosenbaum’s post.  Here I focus on the practical implications for states.

The artfully crafted opinion treats the Medicaid expansion as essentially a new program that states can freely choose to either participate in or not.  The opinion never explicitly defines “the Medicaid expansion.”  A close reading of the decision suggests that the reference is solely to Section 2001(a) of the ACA, which defines a new eligibility category of individuals with incomes below 133 percent of the federal poverty level and describes the benefits they will receive and the federal matching funds states receive for this group.  States can decline to implement the provisions of that section without fear of being subject to sanction by the federal government.  Myriad changes the law makes to Medicaid, including simplifying eligibility standards for many existing coverage groups, changing payment formulas for certain providers, adopting new program integrity measures, and requiring states to maintain their existing coverage standards until the insurance exchange is up and running, appear in other sections and presumably remain fully in effect.

While the Court calls this a “new health care program,” the decision simply limits the Secretary’s remedy as applied to states that fail to adopt the expansion.  If history is an appropriate guide, as a practical matter, states that adopt the expansion will need to submit a Medicaid State Plan Amendment for approval; states that do not wish to do so need not.  For states that proceed, all other aspects of the Medicaid statute, regulations, and case law apply to the expansion in exactly the same way as they apply to all other covered groups.

As with any other provision of Medicaid law, states should expect additional guidance from CMS.  Critical issues for CMS to address will include due dates for states to indicate their plans so they can be approved for implementation on January 1, 2014; possible restrictions on states’ ability to amend their state plans to eliminate this eligibility group in the future; and the possibility of limiting eligibility to a subset of those made eligible under federal law (for example, limiting eligibility to those with incomes below the federal poverty line, since those above are eligible for premium assistance tax credits if they are ineligible for Medicaid).   Under well-established precedent, the courts will give CMS’s interpretation of the statute great deference.

In practice, this “new program” will interact with health insurance exchanges, the Children’s Health Insurance Program, and states’ Basic Health Programs, in addition to the rest of the Medicaid program and the broader health insurance market, and those interactions will require definition.  CMS will need to provide guidance regarding the relationship between coverage provided under Section 1115 waivers and coverage provided under this new eligibility category.  Inevitably, the lines between the pre-existing Medicaid program and this “new program” will become blurred.  Future congresses, and perhaps future courts, will have to consider the practical realities that are far more complex than the simple framework established by the Court.

State cannot wait for all of these issues to be resolved. Twenty-eight states and the District of Columbia are in the midst of fundamental redesigns of their eligibility systems to accommodate major changes to (and simplifications of) Medicaid eligibility, new advance premium tax credit eligibility, health plan selection through the health insurance exchange, and transitions of enrollees across various sources of coverage.  States simply cannot slow down these herculean efforts to await a state-level decision regarding Medicaid coverage that may depend upon federal guidance that will surely take some time to develop.

Another political issue that may delay states and increase the role of the federal government in their health systems. Which, once again, brings us back to governance.  In the long run, it seems hard to imagine that many states will decline what Justice Kagan at oral argument called a “boatload” of money being made available to provide coverage to the poorest and neediest citizens.  But in the short run, the Supreme Court’s decision adds yet another fraught political issue to the already long list of decisions states must make simply to move forward.  Absent strong state leadership and clear processes for making these consequential decisions, the primary effect of the Court’s approach will be to slow even more states down with the unintended result of pushing more states toward implementation models that are reliant upon the federal government.

After their victory in the Eleventh Circuit, plaintiff states had reason to hope the Supreme Court would invalidate some or all of the Affordable Care Act.  The legal cloud hanging over the law has now lifted and the remaining cloud is political.  With presumptive Republican nominee Mitt Romney vowing to block implementation of the law and seek its repeal, it is certainly possible that the ACA – or at least some features of it – will not last into the future. States that choose to gamble on that outcome must be aware that, if they lose, they will have made the de facto choice to have the federal government set up the exchange and intervene heavily in their state’s health insurance marketplace.

The Supreme Court has spoken.  Now it is time for the states to decide.

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