Medicaid is a federal-state partnership program governed by Title XIX of the Social Security Act of 1965. Each state-based Medicaid program operates under a legal contract between that state’s government and the federal government. The basic terms are that the federal government will provide funding to a state if it uses those funds to operate a Medicaid program in accordance with provisions of the legal contract, or “state plan.”[1]

Federal Medicaid law sets the allowable scope within which the parties — the U.S. Department of Health and Human Services and the state government — may contract.[2] A state may customize its Medicaid state plan in a number of ways, provided that those customized provisions are within the basic parameters set forth in Title XIX. Any changes to a state plan that are subsequently agreed to by the state and HHS take the form of a “state plan amendment.”[3] Thus, a Medicaid state plan amendment is an amendment to the underlying contract and carries the same legal weight as any other provisions of the state plan.

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For a state to adopt the Medicaid expansion, it must amend its Medicaid state plan to reflect that action, and HHS must agree to that amendment.[4] Once the state plan has been amended to include the expansion, that agreement becomes part of the legally enforceable state plan contract.[5] A state must be in compliance with its own state plan. The federal government enforces compliance by withholding federal funds.[6] The mere threat of withholding federal dollars can generally ensure compliance.

While Medicaid expansion under the ACA promises states more generous federal funding (“match rates”) for the expansion population, it does so by fundamentally transforming Medicaid programs. Instead of a cooperative program in which states were previously only required to provide coverage for certain categories of needy individuals (the elderly, blind, disabled, pregnant women, children and low-income parents and caretaker relatives with dependent children), the ACA turns Medicaid into a broad-based entitlement program, with participating states required to cover all individuals below age 65 and under 138 percent of the poverty level.[7] Consequently, the new beneficiaries will be able-bodied adults, and the vast majority of them (84 percent in Michigan and 90 percent in Ohio) have no dependent children.[8]

So long as a recipient meets this income criteria, the ACA’s expanded Medicaid program does not permit the states flexibility to, for example, limit the duration of benefits or condition the receipt of benefits on meeting work requirements, participating in drug testing programs or paying minimum copayments.[9] This lack of flexibility has been a major concern of Michigan and Ohio policymakers.