Michigan GOP Medicaid 'Reform' Proposals

Like Déjà vu all over again

In an attempt to thread the needle between Left and Right on Medicaid expansion, Michigan House Republicans recently unveiled House Bill 4714, which expands Medicaid to everyone earning less than 138 percent of the federal poverty level, but only if certain reforms are approved by the federal government.

Michigan's latest foray into Medicaid expansion is not new. Many states, in an attempt to overcome the federal government's "my house, my rules" funding dynamic, have proposed reforms — politically unlikely conditions, really — in exchange for taking federal Medicaid expansion dollars. But lawmakers in the Great Lake State may not fully realize the extent to which other states have tried — and failed — to get federal buy-in on similar reforms. Consider:

House Bill 4714 includes a financial trigger that rescinds Medicaid expansion if federal funding falls below 100 percent.

This trigger runs contrary to the federal health law itself, which promises states 100 percent federal funding for the first three years of expansion and then 90 percent federal funding starting in 2020 and beyond. And last week, the Centers for Medicare & Medicaid Services (CMS) rejected Maine's request for 100 percent federal funding in perpetuity. The CMS letter states that it "has no authority to change the matching rates by regulation or waiver."

Some health policy experts have also questioned whether a Medicaid trigger would even be enforceable, as the Supreme Court ruled only whether Medicaid expansion was mandatory for states, not whether a state can rescind the expansion without losing federal Medicaid funds altogether. 

In other words, regardless of the Court's decision, the Patient Protection and Affordable Care Act statute remains in effect. And the statute says that the secretary of Health and Human Services has sole discretion to withhold federal Medicaid funds if a state fails to comply with Medicaid requirements.

Robert Alt of the Buckeye Institute, writing about a similar provision in Arkansas's "private option" Medicaid expansion bill, explains:

Therefore, if Arkansas tried to exit expansion after the federal government failed to meet its commitments, there is a substantial possibility that a court could find that the Secretary of Health and Human Services has the legal authority to condition first-dollar federal Medicaid spending on the state's continuation in the expanded program. To put it bluntly: under this scenario, expansion is forever. Private-option boosters are free to point to the triggers in a private-option bill, but they have misunderstood how state legislation works if they think it trumps federal law and Supreme Court precedent.

Alt calls this the "Hotel California" effect of Medicaid expansion — states can check out of Medicaid expansion anytime they like, but they can never leave.

House Bill 4714 gives the Medicaid expansion population the option of an HSA-like account.

Indiana has gone down this road before. In 2008, Gov. Mitch Daniels implemented the Healthy Indiana Plan, a Medicaid expansion with a Health Savings Account-like component called a "POWER Account" used to purchase health insurance and health care services. Under the plan, Indiana would guarantee at least $1,100 in each POWER Account, but also require that Medicaid recipients contribute up to 5 percent of their income.

In 2012, CMS squashed Healthy Indiana's long-term future and instead gave it a one-year extension that expires at the end of this year. In its letter to Indiana state officials, CMS indicated that it is unlikely to extend any state program that covers low-income adults "in anticipation of the new coverage options available in 2014" (read: Medicaid expansion).

Now Gov. Mike Pence is proposing that CMS extend the Healthy Indiana Plan for another three years, with the possibility that the plan could become Indiana's Medicaid expansion coverage vehicle. But if CMS doesn't think Healthy Indiana should serve the childless adults currently in the program, it is unlikely that CMS will approve the same option for low-income parents as part of the Medicaid expansion — for Indiana, Michigan, or any other state.

House Bill 4714 gives the Medicaid expansion population the option for premium assistance to purchase coverage in the state health insurance exchange.

This provision mirrors Arkansas's "private option" that expands Medicaid by allowing the Medicaid expansion population to buy coverage on the state's forthcoming health insurance exchange.

Pro-private option Arkansas legislators like to point out that they are reducing the Medicaid rolls by putting more people on private coverage. Nothing could be further from the truth. Using this logic, you could also argue that the Supplemental Nutritional Assistance Program exists in name only because government dollars are used to purchase food at private grocery stores. Of course, this isn't the case.

The bottom line is this: Expanding Medicaid, whether through the traditional Medicaid program, a Health Savings Account, or exchange coverage, still is a massive expansion of the welfare state. More people will get government-subsidized health care that must comport with government rules.

CMS has reiterated that expanding Medicaid via exchange coverage is still a Medicaid expansion, and Washington holds all the cards. In an infamous Good Friday memo released in March, HHS Secretary Kathleen Sebelius confirmed that Medicaid coverage purchased in an exchange must look like traditional Medicaid coverage.

In other words, Michigan has no other option but to expand the Medicaid program exactly as it exists today, which other states have done with disastrous results. States can't vary Medicaid benefits or implement co-pays or other cost-sharing mechanisms that aren't currently allowed by federal law. If exchange benefits don't comply with current Medicaid requirements, states must provide "wrap-around" coverage at the state's expense.

Michigan lawmakers are playing a dangerous game when they propose politically unlikely conditions in exchange for an Obamacare Medicaid expansion. Reforms are certainly worth pursuing, but not at any price.