Editor’s Note: This piece is a counterpoint to an article written by Rick Cohen, Not Expanding Medicaid Leaves 5 Million in Health Coverage Gap

The Kaiser Family Foundationreleased a study on the effect of 26 states electing not to expand Medicaid coverage to all individuals up to 138 percent of the poverty level, as authorized by the Affordable Care Act (ACA). The Medicaid expansion was designed to be mandatory, with the federal government picking up all the cost for the first few years, and then tapering down to a permanent 90-percent federal share. (The 90 percent federal share of Medicaid expansion contrasts with the roughly 60 percent federal share for Medicaid recipients not part of the expansion group.)

The U.S. Supreme Court, in its decisions upholding the constitutionality of the ACA, held that the federal government could not withhold all Medicaid funds from states refusing to adopt the expansion program. Instead, the federal government must make participation by states in Medicaid expansion voluntary.

Kaiser has been working to identify where and who would be affected by decisions not to expand coverage. Out of 17 million people intended to be covered, about one-third, or 5.1 million, live in states that have not yet adopted Medicaid expansion. About half of the five million live in just five states: Texas, Florida, Georgia, Ohio, and North Carolina.

Much has been made of the political composition of the 26 states. All have Republican governors and/or GOP-controlled state legislatures. Healthcare reform has been a polarizing issue in the U.S. for decades. The ACA passed Congress in March 2010 without a single Republican vote in support and with virtually no GOP proposals incorporated into the final bill. The failure to achieve a bipartisan reform and the protracted preparation for implementation have done no favors to the concept, either. However, the states’ trepidations are more complex than raw partisan politics or ideology.

Traditionally, both red states and blue states eagerly accept federal support. In fact, most of the 26 states cited in the Kaiser report are states that receive more in federal support than they contribute in federal tax revenue. Incidences where states elect to reject federal funds for any reason are exceptional. Medicaid expansion, however, is a special case.

In many states, and especially states seen as low tax-low service states, the state’s share of Medicaid costs is one of the largest components of the state budget, often only exceeded by state aid to public education. Medicaid costs are difficult to control and often difficult to predict. The ACA’s expansion of Medicaid coverage represents an additional state expenditure burden that was unpredictable for a few reasons. First, the state was to be held responsible for all administrative costs associated with the expansion, but those costs were hard to determine because regulations had not been written. Second, the expansion of Medicaid would place additional pressure on states to increase Medicaid reimbursement rates and expand covered services as providers served more Medicaid patients. Third, there is concern (some would say skepticism) about the federal government’s ability or willingness to sustain the 90 percent cost share indefinitely. Budgetary pressures at the federal level could cause changes in reimbursement to states. States would then face the impossible choice of either: 1) increasing taxes and/or cutting other services to make up the federal shortfall; or 2) deciding to opt out of the Medicaid expansion and leave many thousands of previously covered poor people without insurance coverage.

Uncertainty about administrative costs, ultimate coverage numbers, and the long-term prospect for federal support combined to make Medicaid expansion a gamble for states. Some states have the financial capacity to take the risk. Other states disregard the risk, while still others, often influenced by healthcare provider groups, believe that Medicaid expansion will be a net positive for their state treasuries as well as for their people. State budgets are increasingly like the federal budget, with large percentages of expenditures classified as entitlements and revenues earmarked for specific purposes, such as education support. Most states cannot go into debt, except in very limited cases for capital projects, so running a chronic deficit is an option the federal government has that states do not. The recent Great Recession hit states hard, despite stimulus monies from Washington. States are still recovering from budgetary pain and many still feel uncertain about future revenue trends.

The Kaiser website promises follow-up reports on the demographic makeup of people in the Medicaid expansion gap. This will be valuable to states like South Dakota, where the key question left unanswered by a state Medicaid Task Force was: Who exactly comprises the gap cohort? Knowing that will help states like South Dakota evaluate coverage options and move the state closer to a data-driven, considered decision about which of three options to pursue: to expand Medicaid coverage; to continue to rely on providers for support in serving those not covered by Medicaid, not eligible for exchange subsidies, and not adequately served by community health and community mental health resources; or to devise some kind of “third way” that helps those in need while reducing the risks associated with participating in Medicaid expansion.