On July 24, the Congressional Budget Office (CBO) and Joint Committee on Taxation issued an updated analysis of the coverage provisions of the Affordable Care Act (ACA) to reflect the U.S. Supreme Court’s decision to revoke the financial penalty for states that do not adopt the law’s Medicaid eligibility expansion. Less than a month after the Court decision, CBO and JCT’s analysis adequately accounts for the short-term uncertainty facing policymakers at the federal and state levels. More information and analysis will give us a better picture of what will happen, and more flexibility by the Administration will help states to make the best decisions for their residents.

New Answers To Old Questions

Since passage of the Affordable Care Act (ACA) countless hours have been spent analyzing the statute, understanding the provisions and implications, writing regulations, and, for Medicaid Directors and their colleagues in state government, evaluating the best path forward for individual states. The Court decision altered the landscape for the Medicaid expansion as written in the ACA by, in effect, making it optional for states. The July 2012 CBO analysis identifies a number of fundamental questions that bear a striking resemblance to the issues policymakers debated before eventually passing the ACA.

States are clearly in different places with respect to their views and intent to implement certain aspects of the ACA – particularly the Medicaid expansion. Still, the Court decision has implications for all states regardless of whether they choose to expand their program. Many states are in the process of revisiting some of the original questions they were asking when the ACA first passed.

The CBO analysis also has important implications for federal policymakers. However, its background explanation makes clear the difficulty in seeking to pinpoint federal level estimates for cost and coverage. Ultimately state-level dynamics, such as the nuances of individual Medicaid programs, the Medicaid-Exchange interactions, and state fiscal conditions, combined with the Administration’s decisions about the optional aspects of the expansion will require policymakers to repeatedly revisit these estimates.

The State Option Guessing Game 

The CBO analysis assumes that some states may expand their programs later than 2014, and that others may not expand their programs at all. CBO bases its estimate on the approximate number of people living in states that fall along a continuum that ranges from those states not expected to expand to those expected to expand according to the ACA’s provisions. History tells us that these are appropriate assumptions and approaches for conducting a high level federal analysis. For example, while the federal Medicaid statute was enacted in 1965, it wasn’t until 1982 that every state had established a Medicaid program. More recently, when Congress first passed the Children’s Health Insurance Program (CHIP) not every state immediately chose to set up a program.

Decisions about the now-optional Medicaid expansion involve complex, multi-pronged issues that will likely take time to sort out. Medicaid Directors already have identified an initial list of policy and operational questions about the expansion option. Secretary of Health and Human Services Kathleen Sebelius wrote to governors clarifying a few of the key issues, including that there are no deadlines for states to notify HHS of their decision to take up the optional expansion. However, many states will need additional information on the full extent of the parameters of the expansion option before making final decisions about whether and how to move forward.

Adding Up The Numbers

Compared to their March 2012 estimate, CBO and JCT project that over the next ten years (2012-2022) the ACA’s coverage expansions will decrease the costs to the federal government by $84 billion. The reason, say the analysts, is largely because fewer individuals will be eligible for Medicaid. The CBO model now projects that approximately 11 million additional individuals will be enrolled in Medicaid in 2022, compared with the 17 million additional people projected to enroll prior to the Supreme Court decision. However, according to CBO’s model, the relative decline is greater in the earlier years because a number of states are expected to expand coverage incrementally rather than all states expanding eligibility on a single date.

Of the six million people that now may not be eligible for Medicaid, CBO projects that about half of them will receive federal assistance to purchase coverage through health insurance Exchanges. As CBO points out, the difference in the federal government’s share of the cost of Medicaid versus insurance purchased via the Exchange – approximately $3,000 dollars – mitigates the drop in the overall cost of the ACA for the federal government.

Notably, CBO also seems to assume that the Administration will permit states a certain level of flexibility with the ACA’s Medicaid expansion on par with other Medicaid coverage options. That is, the analysis assumes that a state will have the authority to incrementally implement the expansion rather than simultaneously expanding to all individuals with income up to 138 percent of the federal poverty level.

This type of incremental approach would in many cases more effectively respond to state-specific characteristics such as provider capacity, agency capacity, systems and related infrastructure, and fiscal conditions. It is also consistent with states’ traditional approach when implementing major expansions or other transformational changes to their program.

What To Watch For

The ACA offers states many incentives.  Nonetheless, the reality is that for some states, the Medicaid expansion may not necessarily or immediately be a “no-brainer” as some have suggested. In deciding the course for their state, pragmatic policymakers must weigh all sides of the issue.

While numerous entities are tracking state officials’ public statements about the Medicaid expansion, it is likely the decisions will shift dramatically over time for both policy and political reasons. At least four critical factors will drive these shifts:

1)      Results of individual state-level analyses. While national level estimates are beginning to emerge, what is most likely to sway state policymakers is the specific impact for their state. Targeted state-level analyses take time to develop, particularly when there are multiple unknowns or several new options. Compelling analysis from providers and other stakeholders also will weigh heavily in the states’ decisions, as will the policy and political implications of a potential “coverage gap” for a state’s low-income residents.

2)      The scope of alternative pathways permitted by the Administration. We at NAMD agree with the CBO analysis that, “… how flexible executive branch agencies will be regarding the choices that states will have – particularly states’ options for pursuing partial expansions – is unclear. Hence, what states will be able to do and what they will decide to do are both highly uncertain.” Rather than a challenge or barrier to expanding coverage, the Court’s decision could be viewed as an opportunity to meet states where they are today and support some of the policy tools that states believe can lead to desirable outcomes in a cost-effective manner.

3)      November 2012 elections. National and state level electoral outcomes clearly carry major implications for the Medicaid expansion, as well as the ACA more broadly.

4)      Landscape for federal deficit reduction. While partly dependent on this year’s election outcomes, federal deficit reduction efforts are expected to impact the Medicaid program to some degree. State policymakers are closely watching for signs of the scope of such efforts, including major changes to the Medicaid financing structure, such as similar proposals previously advanced by the Administration and members of Congress.

Expansion Or Not

Whether states expand Medicaid or not, questions will remain about the sustainability of the program as well as the tools that will help improve health outcomes for Medicaid clients. The fact that the ACA’s expansion is optional does not eliminate the urgency to address these challenges. In fact, the optional nature of the expansion opens new doors to support policy tools that will lead to desired health outcomes and set the program on a more financially sustainable trajectory.