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Observations

Opinion, arguments & analyses from the editors of Scientific American

Medicaid Decision Could Further Fragment Health Care

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West view of the Supreme Court Building

West view of the Supreme Court Building

If I had to sum up everything that is wrong with the US health care system in one-word sound bites, I would start with "fragmentation." There are just too many ways for patients to fall through the cracks.* Last week's ruling by the Supreme Court upholding the Constitutionality of the Affordable Care Act (ACA) does not directly address this problem—nor was it meant to. But by making it optional for states to participate in one piece of the ACA legislation, the Court's decision manages nonetheless to introduce the likelihood of yet more fragmentation to the system.

I'm talking about the second part of the Supreme Court's decision—the part that said that the U.S. government cannot penalize states that do not wish to participate in an expansion of the Medicaid system. The proposed expansion, which is slated to start in 2014, was expected to make coverage available to 16 million to 17 million Americans who currently do not have health insurance, according to a March 2012 estimate by the Congressional Budget Office. The first two years would be 100% funded by the federal government, but eventually the states would have to kick in up to 10% of the costs of the expansion.

The rationale for expanding insurance coverage was to make sure that everyone has access to health care, which is essential to sustainable financing of health care in general. It keeps insurance companies from cherry picking only the healthiest people to participate in their plans and it keeps medical centers from getting stuck with giant bills for the treatment of uninsured patients in emergency rooms and on hospital floors.

The idea behind expanding Medicaid in particular is to increase coverage of the working poor—specifically people who make 133% of the federal poverty level, or about $30,000 a year for a family of four.

Currently, the Medicaid program is funded by states and the federal government to provide health care coverage primarily to extremely poor families with children and people whose disabilities keep them from earning much money, as well as paying for a significant share of all nursing home care. People who make more money can purchase their coverage through a health exchange if they don't already get coverage through their employer. The federal government will provide subsidies to buy health insurance to folks who make between 100% and 400% of poverty level.

There is another reason, however, to turn to Medicaid in particular to expand coverage for the working poor. It turns out that the Medicaid program is better at reining in health costs than the private sector. According to an analysis by the Henry J. Kaiser Family Foundation, health care spending by the Medicaid program rose more slowly from 2000 to 2008 on a per-person basis than health spending for individuals with employer-sponsored private insurance.

Why would any state turn down free money from the federal government to expand Medicaid? Apart from any political motives—not wanting to hand Democrats a policy victory—there are some substantive reasons for proceeding cautiously. "States have a real love-hate relationship with Medicaid,” as Alan Weil, the executive director of the non-partisan National Academy for State Health Policy, told a webinar briefing of journalists sponsored by the Association of Health Care Journalism last Friday.

"Governors love to hate it because it eats up all of the dollars that they thought they were going to be able to use when they got elected for other priorities like education and transportation and economic development," Weil noted. "They feel that the program is fiscally out of control. They feel that they cannot manage it. They are not confident that the federal high level of funding will remain indefinitely."

While 26 states—including Texas and Florida—filed suit against the mandatory Medicaid expansion, several other states—including Connecticut and Minnesota—requested and received permission to start expanding their Medicaid programs ahead of the 2014 deadline. So clearly some states think expanding Medicaid coverage is a good idea.

If every one of the 26 states that file suit against the ACA opts out of the expanded Medicaid program, nearly 9 million people who would have been covered may not be. (You can do the math by comparing the names of the 26 states against the numbers in Tables 1 and 2 of this May 2010 analysis by the Urban Institute for the Kaiser Family Foundation.)

Florida's governor has already gone on record saying that his state will opt out of as much of the ACA as it legally can because it believes its medical costs would otherwise rise uncontrollably and it is satisfied with the health coverage it already provides many poor families. The governor of South Carolina has made a similar statement.

So now we're going to have a situation in which nearly all the residents of Connecticut and Minnesota and other states with expanded Medicaid programs and health exchanges will have insurance—and presumably the access to care that goes along with coverage. But states that refuse to expand Medicaid will create a strange new gap in their coverage (similar to the donut hole that famously existed in President Bush's prescription drug benefits). As Kevin Outterson, an associate professor at Boston University's Schools of Law and Public Health, explains in a blog post for The Incidental Economist:

"in opt out states, citizens under 100% [of the Federal Poverty Level or FPL] can't qualify for refundable tax credits for coverage under a qualified health plan in the exchanges. So a new donut hole is created: desperately poor parents are covered (in Texas, up to 26% of FPL), then the ever so slightly less poor are not covered (in Texas, 26% – 99% FPL), then tax credits in the exchanges can kick in above 100%."

So if you divide poor people into the desperately poor, the slightly less poor and the almost-not poor, then the desperately poor and the almost-not poor are covered by either Medicaid or subsidies to buy insurance but the average poor—who are in between the other two groups—get nothing.

In other words, the Supreme Court decision has created yet another level of fragmentation that the U.S. health care system—not to mention its patients—could really live without.

*Two big examples of fragmentation: no single health professional is typically responsible for a patient's care and health insurance coverage (and the rules that govern it) keeps changing based on, among other things, when a person moves, changes jobs or simply gets older.

The views expressed are those of the author and are not necessarily those of Scientific American.

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