Folding Medicaid into Medicare for America: Will states pay their share?

Subscribe to xpostfactoid via box at top right (requires only an email address; you'll get 2-3 emails per week on average)

One of the many sweeping transformations of U.S. healthcare mandated by the Medicare for America Act is the absorption of all Medicaid programs -- currently serving some 72 million Americans -- into a revamped Medicare serving all ages. That would occur six years after enactment.

Medicare for America would be available to Americans of all ages and incomes -- and free to everyone in a household with an income below 200% of the Federal Poverty Level (FPL). That's far above the eligibility threshold for Medicaid programs -- with the exception CHIP in some states, for which children in families with incomes as high as 400% FPL may be eligible. Families with incomes between 200% and 400% FPL would have to pay a percentage of income -- probably not higher than 4% -- to insure the whole family. The new program would include comprehensive disability services and 100% coverage for the medically frail and for chronic disease treatment, as well as dental, vision and hearing services.

State governments -- many of them sure to be deeply hostile -- would be subject to two major requirements: 1)  cede control of service for their Medicaid populations, and 2) reimburse the federal government with "maintenance of effort" payments equivalent to their current Medicaid responsibilities, adjusted annually for inflation. Those requirements are certain to be challenged in court, as was the ACA Medicaid expansion.

My call on King

I hope I don't end up thrashing myself for wishful thinking, but I think the Supreme Court will rule for the government in King -- no odds on whether it's Chevron deference (the law is ambiguous, and the IRS interpretation is reasonable) or that the law's intent to provide subsidies to all states is unambiguous. I would hope that my bias -- I think the case is a fraud -- is balanced by superstition --an unwillingness to predict what I wish (overridden by being asked, as part of a list).

I can't wrap my mind around both Roberts and Kennedy agreeing to a) blow up the economy and b) credit the plaintiffs' bogus narrative that Congress intended a form of coercion that no one recognized and that the law does not spell out (a state only gets premium subsidies if it establishes its own exchange).  On both counts I take some reassurance from the dissent as well as the majority opinion in NFIB v. Sebelius, the challenge to the ACA's constitutionality ruled on in 2012.

The dissent in that case shows both thorough awareness of the interdependence of the ACA's core provisions and a wariness of causing massive economic disruption:

The case against King, by Scalia, Kennedy et al

The plaintiffs in King v. Burwell claim that the ACA's creators intended to coerce states into setting up their own exchanges by authorizing state-established exchanges alone to credit subsidies to buyers -- denying that power to the backup federal exchange.

In response to this manifestly absurd assertion of intent, the law's supporters have pointed out that no one involved in the law's design, passage or implementation understood such coercion to exist; that laws that make federal grants to the states conditional on specific state action invariably spell out the consequences of non-participation; that the ACA's clear intent is to provide near-universal coverage; and that the ACA's core provisions were designed to be interdependent, so that denying subsidies to residents of some states would render the law inoperable.

On  all of these points, no participant has been so eloquent as the four dissenting Supreme Court justices in NFIB v. Sebelius, the suit challenging the law's constitutionality, who asserted that the entire law should be struck down.

In their dissent, Justices Scalia, Kennedy, Thomas and Alito argued repeatedly that to strike down any core provision -- e.g., the individual mandate or the Medicaid expansion -- was to thwart the intent of the law's creators and render the remaining parts of the law unworkable -- hence the imperative to strike down the whole law.

Abbe Gluck has highlighted the dissenters' most direct assertions of interdependence of parts, laying particular stress on their observation that the law's "system of incentives collapses if the federal subsidies are invalidated" because without the subsidies, "the exchanges would not operate as Congress intended and may not operate at all" (dissent, p. 60).

Equally striking is the dissenters' argument that making the Medicaid expansion fully voluntary, as the Court majority did, would also thwart Congress's manifest intent to provide universal coverage and would thus render the entire scheme unworkable.

If King is upheld, what will Congress do?

Congressional Republicans, who have promised and failed to come up with a legislative alternative to the Affordable Care Act for five years, are now promising that they will have a replacement ready in case the Supreme Court upholds the plaintiffs  this June in King v. Burwell.  Here's Reuters:

Representative Tom Price, Republican chairman of the House Budget Committee, told a conservative forum that the high court's anticipated ruling in the case known as King v. Burwell could cause President Barack Obama's signature domestic policy to unravel quickly.

"We need to be ready, willing and able to move forward," said Price, a leading Obamacare critic who replaced Wisconsin Republican Paul Ryan as House Budget Committee chairman earlier this year.

“We believe we are going to get to that point. I believe the president is actually going to be open to a better way,” he added.

A ruling for the plaintiff in King would leave the body of the law intact, albeit in a vegetative state. The exchanges would still exist, though they would be completely dysfunctional in the states covered by Healthcare.gov. Governors and legislatures in those states would be responsible either for finding a way to continue to subsidize the premiums of tens or hundreds of thousands of state residents who have accessed coverage through Healthcare.gov, or for justifying the denial of subsidies to those residents.

Because the law would still be on the books, there is nothing to force the administration to negotiate a full "replacement" that would entail repeal (as in "repeal and replace"). That leaves the question: Are there possible amendments that would meet Republicans' alleged policy goals without shredding the ACA's coverage grant?  Under pressure of abruptly withdrawing coverage from 8 million Americans, is compromise conceivable?

Michael Cannon gives the game away, cont.*

The Halbig plaintiffs and their allies would have you believe that the titanic struggle in the Supreme Court in 2012 over the constitutionality of the ACA's individual mandate was a fight over nothing. Or, alternatively, that the government had a bulletproof defense of the law's constitutionality that it inexplicably left on the table.

According to the Halbig plaintiffs, the ACA's framers deliberately barred any exchange established by the federal government from crediting subsidies to qualified buyers of health plans offered on the exchanges. Only an exchange "established by a state can do that. Thus, the ACA could only function in a state that established its own exchange.  The law's creators and proponents have been protesting for three years that this claim is preposterous on its face, as a federal exchange would be worthless without the ability to credit subsidies, but that is the suit's  contention.

Michael Cannon gives the game away

Cato's Michael Cannon, a mastermind behind Halbig, has made much of video clips in which ACA architect Jonathan Gruber seems to suggest that states that do not build their own exchanges might forgo their citizens' access to the tax credits subsidizing coverage. Gruber has since claimed that the assertion was a verbal slip, and that he probably meant to suggest (at a time when no one expected states to abstain from building their own exchanges) that a federal "backstop"  might not be in place in time for the first open season.

That's how I understood Gruber when I listened to the first unearthed clip (at minute 31). But Cannon isn't buying it. He's going for the perceived jugular,  claiming proof that the ACA's framers (with whom Gruber worked closely) intended to make the whole ACA machinery dependent on state action:

The problem with his explanations is that Jonathan Gruber doesn’t “flake.” He knows this law in and out. He knew what his words meant, with all their implications, when he spoke them. He knew the feature he was describing essentially gave each state a veto over the PPACA’s exchange subsidies, employer mandate and to a large extent its individual mandate. He knew that could lead to adverse selection. To claim Gruber didn’t know what he was saying is as absurd as saying a conductor might fail to notice that the brass section suddenly stopped playing.

As Cannon asserts, if only the state exchanges can grant subsidies, the individual mandate is all but inoperative in states relying on the federal exchange, because insurance will be unaffordable for most of the state's uninsured, exempting them from the mandate.

If that is the case, the flagship suit against the ACA's constitutionality decided by the Supreme Court in June 2012, NFIB v. Sebelius, is moot, because the ACA effectively imposes no federal individual mandate, only state ones.

Could the ACA exchanges go the way of the Medicaid expansion?

If the D.C. Circuit panel ruling in Halbig stands, and the state exchanges currently run by the federal government are deemed unable to grant subsidies to health plan buyers who qualify for them under the ACA's criteria, Nicholas Bagley posits that "the states with federally established exchanges will come under enormous pressure to establish their own exchanges." The federal government could make it easy for them, Bagley suggests, essentially allowing them to decree that they've "established" exchanges while letting Healthcare.gov continue to run them.  Thus the ACA would likely prove indelible after all:

True, not every state would accept the invitation to establish its own exchange, even if doing so were more or less a formality. But lots of states would, especially as voters started to howl about losing their tax credits. If so, even a bad outcome in Halbig might not matter that much in the end.

That quasi-forecast recalls the argument that all states will ultimately come round to accepting the ACA Medicaid expansion, albeit in their own sweet time (Arizona, the last state to implement Medicaid itself, did so 17 years after Congress established the program).

While this thought might be expected to soothe ACA proponents, for me it had the opposite effect. The Medicaid scenario might provide cover for the Supreme Court to uphold the D.C. Circuit panel in Halbig.

When Chief Justice John Roberts held in June 2012 that the ACA's individual mandate exceeded Congress's power under the Commerce Clause but was a legitimate exercise of Congress's taxing power, he justified the recourse to "the Government's alternative argument" by citing SCOTUS precedent that “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.” He would not thwart Congress's intent by destroying the law's ability to function if he could avoid it.

He showed no such reluctance, however, with regard to the ACA's requirement that states expand Medicaid eligibility to a new class of beneficiaries or else stand to lose federal funding for their existing Medicaid programs. He deemed that requirement coercive, and was joined by six other justices in striking the requirement down and making the Medicaid expansion voluntary for the states.