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The Administration’s Decision On Partial Medicaid Implementation: True To The Law



December 19th, 2012

Ever since the United States Supreme Court decided NFIB v Sebelius in June 2012, all eyes have focused on the question of how the Obama Administration would interpret the Court’s blockbuster ruling on the constitutionality of the Affordable Care Act’s Medicaid expansion.  On December 10, 2012, the Administration answered the question as part of a lengthy series of “Frequently Asked Questions (FAQs)” published by the Centers for Medicare and Medicaid Services (CMS).  Buried near the end was the following:

26.  Can a state expand to less than 133% of FPL and still receive 100% federal matching funds?

A. No.

Of course, the Administration’s answer is hardly so abrupt, although it is quite brief, taking only two paragraphs.  But it is thorough, well reasoned, and consistent both with the text and structure of the Affordable Care Act (ACA) and with HHS’ other interpretations of the ACA and the underlying Medicaid statute.

Three Major Considerations Explain The Answer

A great deal of thought clearly went into the Administration’s conclusion, which rests on three basic legal considerations.

Text and structure. The first consideration is both textual and structural.  The Administration concluded (correctly in our view) that the plain text of the ACA inextricably ties the availability of enhanced funding to coverage of the expansion group in its entirety.  By its terms, the ACA adds a single mandatory eligibility group to the Medicaid statute.  The expansion group is defined as a whole in §1902(a)(10)(A)(i)(VIII), and it consists of individuals with incomes at or below 133 percent of the federal poverty level who are nonelderly, not enrolled in Medicare, and not entitled to Medicaid on another mandatory coverage basis.  Notably, the statutory language leading into this provision (§1902(a)(10)) clearly states that States “must… provide” Medicaid to “all individuals” (emphasis added) who meet the criteria that follow.

In a statute that has many examples of populations and benefits whose coverage is a state option, this clear language (“must” and “all”) stands out.  Congress has shown that it knows how to provide flexibility to the Secretary or the States or both — and it did not do so here.   (Compare, for example, Section 1902(k), a provision added by the same section of the ACA:  “A State may elect to phase-in….”  Such permissive language does not appear in subclause (VIII).)

This conclusion is buttressed by the architecture of the section that is being amended.  The ACA adds this new eligibility group in the same manner as all previous groups; the ACA group was described holistically and in the classic terms used to characterize other populations whose coverage is an irreducible minimum of federal funding.  It is simply number eight in a list.  No previous interpretation has been made of the parallel provisions governing the earlier groups that would suggest they could be subdivided or abridged. By this architecture, it is clear that there should be parallel unitary treatment for this added group.

Moreover, the text and structure of the ACA in its entirety, including the hundreds of provisions that exist beyond this specific element of the law, demonstrates that it rested on an understanding that, in the “new normal” of a post-ACA implementation world, states would extend Medicaid to all persons with incomes up to 133 percent of poverty.  The Exchange market (as well as the optional Basic Health Program market authorized under PPACA §1331) both anticipate such a structure as one part of a comprehensive plan to provide third-party coverage — precisely the point noted by Chief Justice Roberts in his observations about Medicaid’s transformation.

Viewed in this light, it is obvious why the Administration concluded that, although the Supreme Court’s Medicaid coercion decision disrupted the Secretary’s power to enforce compliance with this new Medicaid requirement, the decision did not in any way alter the statutory text or structure of the ACA Medicaid expansion itself. This conclusion was not based on some arbitrary interpretation by the Administration but instead followed from the words of the Chief Justice:

Today’s holding does not affect the continued application of §1396c [describing the Secretary’s enforcement powers] to the existing Medicaid program. Nor does it affect the Secretary’s ability to withdraw funds provided under the Affordable Care Act if a State that has chosen to participate in the expansion fails to comply with the requirements of that Act. This is not to say, as the joint dissent suggests, that we are rewriting the Medicaid expansion. [Chief Justice Roberts’ Opinion, p. 56]

To be sure, the Court fundamentally altered the Act’s operational landscape by concluding that the Medicaid eligibility expansion represented an entirely new program, which in turn barred the Secretary from conditioning federal funding for existing state Medicaid programs on compliance with what was legally identified as a new program. However, this holding goes only to the question of enforcement; it leaves the ACA’s restructured Medicaid design untouched, along with the federal funds to support it.

States now are able to opt out of building this new platform without risking the loss of existing program funding. But the Court clearly tells us that it is not “rewriting the Medicaid expansion.”   And nothing in the Court’s decision can be read as empowering the Secretary to redesign the expansion — and the funds that go with it — as a series of state options.

Limits on the Secretary’s §1115 demonstration powers. The Administration’s second consideration was the limitations on the Secretary’s powers to introduce and finance alternative program design under Section 1115 of the Social Security Act.  Section 1115 allows demonstrations “that are likely to assist in promoting” the objectives of Medicaid.  Under §1115, the Secretary can waive provisions of law found in §1902 of the Act, but the ACA’s enhanced Medicaid funding provisions are codified in §1905 of the Act. Because the new funding provision falls outside §1902, its terms are not waivable, and the Secretary lacks the power to introduce an alternative structure with enhanced federal funding.

As the Administration notes, states may proceed with partial implementation under existing (i.e., not enhanced) federal financial participation terms; indeed, States have been doing so for years.  But the Secretary lacks the power to allow states to restructure Medicaid with the enhanced financing.

Furthermore, as the Administration notes, even were the §1905(a) federal payment enhancement rule waivable, serious questions would arise as to whether a demonstration that moves persons with incomes between 100 percent and 133 percent of the federal poverty level into Exchanges — thereby exposing them to premiums and heightened cost-sharing — would promote Medicaid’s objectives, a fundamental requirement of all §1115 demonstrations. Congress clearly intended to shield this low-income group from this type of financial vulnerability; otherwise, Congress would have put them into the Exchanges in the statute itself or amended the cost-sharing provisions.

The presence of expanded waiver authority in the future, after Congress’s basic design is put into place. A third consideration on the Administration’s part undoubtedly was the additional limitation on Secretarial powers that flow from the terms of the ACA’s State Innovation Waiver provisions (PPACA §1332). This program clearly authorizes the Secretary to consider waivers of Exchange requirements.  In the FAQs, the Administration says that it intends to coordinate such waiver proposals with 1115 waivers to modify Medicaid standards — without disturbing the availability of enhanced funding — as part of broad state coverage innovations spanning both the public and private health insurance markets.

However, this provision takes effect for plan years beginning 2017, and effective dates are about as plain as plain text can be.  As the Administration saw it, Congress made clear that in the future there is, indeed, a potential for Medicaid coverage modifications that do not place states at risk of losing their enhanced funding (or other Medicaid funding for that matter).  But to read this provision as allowing such Innovation Waivers over the 2014-2016 time period would read the words “on or after January 1, 2017” out of the statute.  (The Administration’s previous stated support for legislation to amend this date to be January 1, 2014, only confirms that the time limits of the ACA are clear.)   This is another sure sign that the ACA’s basic architecture (including a new Medicaid eligibility platform) must be put into place before large-scale federally funded replacements can be attempted.

Adhering To The Law And The Ruling Of The Court

In July, in an earlier Health Affairs Blog post commenting on the CBO’s revised cost estimates for the ACA in the wake of the Supreme Court’s decision, we posited that the Secretary lacked the legal authority to sanction the type of partial expansion envisioned by the CBO.  We expressed our surprise that the CBO would assume the existence of such sweeping administrative powers literally to rewrite the law, when in fact the Court’s decision was far more limited in scope.

Of course, the CBO was not alone in its conclusions; many political observers, and an astonishing number of news reports, all framed the Court’s ruling as converting a statutory mandate into a flexible coverage option.  This may be an informal way of thinking about what the Court did. But from a legal perspective it is not the correct interpretation of the decision. The judgment of the Court modified federal enforcement powers; it did not refashion the expansion itself.  The Court’s ruling effectively took away the Secretary’s traditional enforcement tool, namely the threat to cut off all Federal matching payments to states that do not comply with an eligibility expansion requirement. But nothing in the Court’s ruling provides a basis for empowering the Secretary to seize legislative power to restructure the Medicaid statute.

Indeed, as the Administration also notes (Q. 28), the Court’s constitutional analysis was confined to the eligibility expansion, and its ruling served simply to limit the scope of the Secretary’s remedies in the face of non-expansion. While some might wish otherwise, this is what the Court did.  In our view, the Administration should be applauded for not bowing to the politics of the moment, for not ignoring the text and structure of the Act itself or the intent of Congress, and for not reading the Court’s opinion as creating in the HHS Secretary legislative powers to rewrite federal law in the absence of clear Congressional authority to do so.  The Administration is being true to the law.

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