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States eye leveraging health reform ruling to cut Medicaid eligibility

Some experts question state interpretations that the Supreme Court decision means they no longer need federal waivers to cut enrollees.

By — Posted July 23, 2012

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For Maine, the U.S. Supreme Court’s June 28 decision that states can’t be penalized for opting out of the Affordable Care Act’s Medicaid expansion also means that the state no longer has to go through a waiver process to tighten its current Medicaid eligibility standards.

Maine’s governor and the state’s attorney general are challenging the validity of the “maintenance-of-effort” requirements, first established under the most recent federal stimulus law and later extended under the health system reform law. Under the requirements, states must maintain certain eligibility levels for all existing adult Medicaid beneficiaries until 2014, and for all children in Medicaid and the Children’s Health Insurance Program until 2019.

States accepted billions in federal stimulus money in exchange for complying with this mandate. But Maine legislators had been seeking to tighten Medicaid eligibility anyway. The lawmakers approved cuts to its Medicaid program in the last legislative session that included eliminating coverage for 19- and 20-year-olds and reducing the income limit for parents from 133% of the poverty level to 100%, said Adrienne Bennett, a spokeswoman for Maine Gov. Paul LePage.

Before the high court’s decision, the state would have needed a federal waiver from the eligibility requirements to implement these changes without risking the loss of federal matching funds. The Supreme Court decision that the federal government cannot threaten the loss of all matching dollars for a failure to buy into the expansion of the program, however, confirms that states have more flexibility to manage their Medicaid programs, Bennett said. Under the state’s reading of the ruling, that means a federal waiver — often a complex and unpredictable process — is no longer necessary to make eligibility changes.

Instead, Maine will be submitting to the Dept. of Health and Human Services a more routine state plan amendment to its Medicaid program, which “is required for any change in Medicaid services and is within the normal course of doing business within the Medicaid program,” Bennett said.

She added that the state has been very generous with its welfare benefits program, offering benefits that significantly exceed federal minimums. The governor has been a vocal opponent of the health reform law, although the state has yet to decide whether to expand Medicaid starting in 2014.

The Maine Medical Assn., a supporter of the Affordable Care Act, is opposed to the proposed eligibility cuts and the process the state is using to try to implement them, said Gordon Smith, the association’s executive vice president. Ultimately, the issue is going to entail a conversation between the state and federal governments, he said.

It’s unlikely that physicians in the state will be able to change LePage’s opinion, but “we feel that it’s never appropriate to be taking away coverage,” Smith said.

Maine is not the only state that sees the Supreme Court Medicaid ruling as offering a window for making eligibility changes to its current Medicaid program. In Texas, “we believe that the [maintenance-of-effort] requirement was invalidated after the Supreme Court issued its ruling last month,” said Josh Havens. He’s deputy press secretary to Gov. Rick Perry, one of the more vocal Republican governors opposed to the law.

Many governors and state legislatures are looking at the Medicaid provisions very carefully following the high court’s decision, said Stuart Gerson, senior litigating partner at Epstein Becker Green in Washington and New York and former acting U.S. attorney general. “They have real economic problems,” and Maine in particular is a poor state without many resources, he said.

Assuming the eligibility requirements established by the stimulus and health reform laws suddenly are invalid, however, may be stretching the court’s opinion too far, Gerson said. Maine officials “are trying to reason that [congressional] tax power can’t be used in a punitive way. The only thing that was discussed in the opinion was the concept that the federal government couldn’t cut off federal money entirely if the state declined to participate in the expansion. It didn’t say anything else piecemeal.”

HHS Secretary Kathleen Sebelius made a similar clarification in a July 10 letter to the governors. She did not specifically address proposed eligibility changes, but noted that no other provision beyond the reform law’s Medicaid expansion was affected by the court’s narrower ruling.

The Maine and Texas eligibility argument is part of a growing backlash against the law’s Medicaid provisions by Republican governors following the high court’s June 28 decision. The expansion was projected to cover about 16 million more individuals younger than 65 by expanding all state Medicaid programs to people with incomes up to 133% of poverty.

As soon as Maine certifies it is operating a health insurance exchange through which consumers can buy private insurance, the eligibility maintenance-of-effort requirement goes away, said Deborah Bachrach, New York’s former Medicaid director and special counsel in the health care practice at Manatt, Phelps & Phillips, LLP, in New York. “But until then, it’s in place, as much as the other provisions of the ACA that relate to Medicaid. All the requirements to streamline eligibility, to interface with the exchange, the extra dollars for primary care rates … those hold and nothing changes.”

HHS will have 90 days in which to respond to or ask questions about Maine’s state plan amendment. “During that time period, I would envision a dialogue with the state,” Bachrach said.

Many states have long viewed the eligibility requirements as a barrier to controlling their program costs and making budgetary decisions. Governors of 32 states made their concerns known in a January 2011 letter to President Obama, Sebelius, and House and Senate leaders, asking for flexibility and relief from the mandate.

But many want to see the provisions remain intact. The American Medical Association at its 2011 Interim Meeting approved a policy that opposes any efforts to repeal these eligibility requirements in the reform law and the stimulus act.

States are using some strong language about the high court’s ruling right now but may ultimately be looking for more modest concessions, Gerson said. He predicted that virtually all states eventually will opt into the Medicaid expansion, but that this will take some time as states and the federal government engage in negotiations on how exactly both sides will proceed.

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