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Roberts’ “Flying Squirrel” Maneuver Takes Down the Affordable Care Act

After a four month “death watch” in the mainstream media for President Obama’s health reforms (following an ineffectual defense in March’s Supreme Court hearings), instant analysts were quick to characterize last week’s Supreme court decision as a ringing vindication of the Affordable Care Act and a big political victory for a struggling President Obama.

However, on closer reading, the instant analysts were wrong. The Roberts Court actually punched a huge hole in the law, potentially reducing its historic coverage expansion by as much as a third. In addition, the Court’s ruling will set off serious political conflict in southern and mid-western states that will ripple through those states’ health care markets, and fracture hospitals’ and health plans’ support for health reform.

Unlike the Act itself, which was almost unreadable, the Court’s opinions were written in English and will reward readers with fresh understanding of this complex law. They reveal two incommensurable philosophical positions eloquently argued and improbably bridged. There were two big surprises: Justice Robert’s apparent last minute support of the Court’s liberal wing in preserving the mandate and the remarkable decision to render the Medicaid coverage expansion optional! (Justice Kennedy, the presumed swing vote, actually supported killing the entire law).

Roberts’ switch required a breathtaking bit of jurisprudential wizardry: declaring ACA’s clearly labeled “penalty’ for refusing to purchase coverage a “non-tax” for purposes of the Anti-Injunction statute (which kept this mess from landing on the Court’s desk yet again when it’s actually levied in 2014) yet, mere pages later, declaring it a valid use of Congress’ taxing power and thus sustaining the Constitutionality of the mandate.

Robert’s maneuver was the juridical equivalent of this remarkable hop-over-the-opponent “flying squirrel” wrestling takedown.

A progressive, pro-ACA legal scholar colleague pronounced Roberts’ “yes, it’s a penalty, no, it’s a tax” construction “absolutely incomprehensible”. An outraged Antonin Scalia, who clearly expected Roberts to support killing the entire law, could only fume that the argument “carries verbal wizardry too far, deep into the forbidden land of the sophists.’

But the biggest surprise was the Court’s handling of the law’s Medicaid expansion. Many legal observers were surprised that the Court agreed to review the Medicaid expansion at all, given the long history of incremental expansions of the program. The Roberts Court found that requiring states to add between 15-20 million new low income folk to Medicaid rolls on penalty of withdrawing the state’s entire Medicaid funding was a coercive  and thus unconstitutional abridgement of states’ rights- in Roberts’ words “a gun to the head”. In this, the conservatives were joined by Justices Breyer and Kagan, for a stunning 7-2 majority. For the Court effectively to rewrite the statute to render the Medicaid expansion “optional” for states was an outcome no-one expected.

Congress leaned heavily on Medicaid’s bargain basement provider payment rates to squeeze the maximum amount of coverage out of the ACA’s limited new revenues. Yet by relying on Medicaid for as much as half of the expansion ACA disproportionately affected southern and border states with hostile Republican controlled statehouses.

The Medicaid expansion intended to partially nationalize the program, agreeing to pay for 100% of the first three years’ cost for the newly eligible, and 90% thereafter. It also ended Medicaid’s welfare-era categorical program structure (that is, covering various needy groups). ACA raised income eligibility to 138% of poverty (quadruple the present income thresholds in many southern states), adding millions of single adults not in families that formerly were excluded from coverage. It also channeled Medicaid enrollment through the newly created Exchanges, and standardized Medicaid benefit packages. The net effect: ACA compelled sharp Medicaid enrollment growth in states with historically skimpy benefits, low income eligibility thresholds or both.

Those who’ve studied the uninsured problem closely know that a huge percentage live in the southern third of the country, whose Medicaid programs have historically enrolled far fewer of their eligible populations, and whose economies were devastated by the 2008 recession. Look here for an analysis of Medicaid takeup rates by states and the reasons. There are twelve million folk presently eligible for Medicaid but not enrolled, heavily skewed toward those same southern and border states. ACA would have doubled Medicaid enrollment in many of these states. Louisiana has estimated that 48% of its residents would be Medicaid beneficiaries at full implementation.

And adding these presently eligible to the rolls would cost states not an eventual 10% but between 30-50% right away, depending on the state’s current federal matching (FMAP) rate. The Exchanges would also become an express lane for these folks onto Medicaid rolls through expedited Internet based enrollment. When Jagdeesh Gokhale examined the fiscal consequences to states of the expansion, he found that when compounded by states’ expected population growth and continued medical inflation that several key large states would see their general revenue funded Medicaid costs double between now and 2020, despite the generous federal match for the newly eligible folks.  Two of those states, Florida and Texas, contained  in 2010 a combined ten million uninsured, and all-but-bankrupt California, another 7 million..

Of course, the classic problem with Medicaid is its countercyclical effect. In recessions, states see both falling general revenues and sharply increased enrollment – a recipe for recurring fiscal crises. For states with precarious economies, the Medicaid expansion effectively fills the ship of state’s hold with tons of loose cannonballs that will roll with the storm’s waves. If states are struggling now with 53 million Medicaid beneficiaries, imagine the gravitational effect of 80+ million in the next recession!

The reaction by Republican Governors (whose Attorneys General were plaintiffs in the Supreme Court case) was immediate and predictable. Seven southern and mid-western Governors said that they would decline the expansion and eight more said they were seriously considering doing so. These fifteen states, including the aforementioned Texas and Florida, contain 40% of the nation’s uninsured.

If half of their uninsured were Medicaid eligible, and the states follow through on opting out, that would take eight to ten million people out of the coverage expansion, leaving it well short of half of the nation’s 50 million uninsured.   Though several million people between 100% and 138% of poverty would be eligible for subsidies through the Health Exchanges, the fact that they would have to pay SOMETHING as their share would likely limit the uptake to the sickest fraction of the eligible group.

Hospitals are watching these developments with mounting alarm. National hospital organizations actively supported health reform, even if grassroots hospital executives remained major skeptics. And they gave up $155 billion in future Medicare payment reductions to gain 30 million new paying patients, and consented to the reduction of disproportionate share payments (DSH) payments intended to compensate them for their bad debts and charity care.   A cancelled Medicaid expansion would place the safety net hospitals in those states at serious economic risk, who would be forced to continue relying on Robin Hood economics to keep their doors open

For several reasons, health plans will also have trouble with the newly “optional” Medicaid expansion. The only reason health plans agreed to unprecedented federal restrictions on their business practices was the promise of near-universal coverage.

Cost shifting and adverse selection will remain in full cry in the opt-out states.

How can health plans in states which decline the expansion be expected to absorb, through guaranteed issue and guaranteed renewal, the flood of adverse selection, not to mention the above discussed provider cost shifting? If the federal government enforces the rate controls in ACA, health plans could run out of cash and exit those markets. And if CMS declines to enforce ACA’s rate controls, employer health premium increases could head back north into the high teens or low twenties.

Will the uninsured join their hospital and health insurance colleagues on the battlements to prevent Republican controlled states from following through on their Governors’ threats to opt out? Not likely. Last fall, Kaiser Family Foundation found that only about half of the uninsured were even aware of the Medicaid expansion, let alone whether they would benefit from it or not. 47% of the uninsured said they did not believe health reform would improve their access to health care, and 14% thought access would actually be harmed. The Court’s Medicaid decision could end up depriving millions of economically marginal folks of benefits they did not even know they were getting.

How all this will turn out is beyond this futurist’s grasp. My crystal ball is still in the shop. This fall’s election is a far bigger risk to health reform than what the Roberts court did last week. However, the Roberts Court has thrown the intricate web of “bargains” that made health reform possible into chaos and health reform has sustained a serious blow Watching the spreading chaos is going to make it an interesting summer and fall, leading to a consequential election. Health reform is far from a done deal.

Jeff Goldsmith is president of Health Futures Inc, which specializes in corporate strategic planning and forecasting future health care trends. He is also the author of “The Long Baby Boom: An Optimistic Vision for a Graying Generation.”

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Mckinley Frees
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Je deed het een groot werk te schrijven en het onthullen van de verborgen gunstige eigenschappen van

Anaemngam
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Bob Hertz
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I think it was Michael Lind who said that if the southern border of the USA was the Mason-Dixon line, we would have had national health insurance 50 years ago. Many voters in Southern and Western states take the position (rather privately) that they never wanted black people to have more children, and they never wanted Mexican people to stay around after the harvests……..so why should they pay higher taxes to help these groups? These states want to be inhospitable to minorities. For years the unofficial policy in these ultra-red states has been that if Minnesota and Illinois and Wisconsin… Read more »

Pat S
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Pat S

Also, there are more flavors of Medicare Advantage than Ben & Jerry. Some do indeed use cost plus negotiations where they can, but they do run into the usual insurance problems with powerful market dominating providers. In my area, the biggest providers unceremoniously dumped four MA insurers when they refused to comply with dictated prices, and they got away with it. I am certain the same would be true in many places. As for including other benefits in Advantage that end the need for supplemental, that does happen, especially with “A” rated MA providers, but tends to be associated with… Read more »

Pat S
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Pat S

Barry — I agree totally with your estimate (around 6%) of the true overhead of Medicare. However, your estimate of the overhead of self insured programs is one that ignores the costs of the self insured corporations. Added in, that drives the cost to more like 11% — still a substantial savings from the direct commercial market and a huge savings from the individual market. While the ACA will at least try to eliminate overhead related to underwriting by requiring community pricing, one thing we will have to watch closely is the development of cherry picking through one mechanism or… Read more »

Barry Carol
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Barry Carol

Pat S – Medicare’s administrative costs are significantly understated because some of its functions are performed for it by other government agencies. For example, the process of enrolling in Medicare is handled by the Social Security Administration. The rent for the offices occupied by CMS employees is paid by the General Services Administration. It’s funding is provided by the Treasury Department and collected by the IRS. Fraud cases are investigated by the Office of the Inspector General. On a fully allocated basis, Medicare’s true administrative costs are closer to 6%-8% than the widely touted 3%. The upper single digit number… Read more »

Pat S
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Pat S

Wyden/Bennet, and all other models using vouchers or “premium support” to subsidize purchase of private insurance using public money run aground on three hard facts: 1.) Overhead in private insurance is substantially higher than in Medicare and Medicaid. This means that a significant fraction of spending is removed from the process of actually providing health care and used up in overhead. 2.) Medicare historically is much more effective at setting prices paid to providers and hospitals. Private insurers pay substantially more. Again, this is money that decreases the ability to actually provide care. 3.) Medicare is historically much more effective… Read more »

John Ballard
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Thanks, dude. I don’t feel as put down as I did before. And thanks for re-joining this discussion. I have been one of your fans for several years. This post and comments thread from Health Beat was worth bookmarking.

http://www.healthbeatblog.com/2009/03/a-guest-post-what-the-doctor-ordered/

Maggie Mahar
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Matthew– I agree on all points.

Maggie Mahar
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Barry– Just a P.S.– If you give poor children 1-18 the services they need (dental and vision care wtihout co-pays, drug counseling, mental health services, etc.– all of which are included in “essential benefits” under the ACA) , they are not that inexpensive to insure. Many children living in poverty suffer from a variety of physical and mental problems due to poor pre-natal care, poor nutriton, and living with the pressures of poverty– pressures that make the adults they live with depressed, angry and unpredictable. Cuomo was right– Medicaid should be a federal program. But there will not be a… Read more »

junkhash
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junkhash

if you charge states according to the income of their citizens(tax base) to fund this federal medicaid, wouldn’t it be the same as our already existing federal income tax? why not just have the feds(IRS) collect it directly from the citizens?

Maggie Mahar
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Jeff– You tend to assert, without citing evidence. . . . First, on what the Medicaid expansion will cost states, I’m afraid you exaggerate. The expansion will actually SAVE states money –the money that they now spend helping hospitals cover unpaid bills. “Numbers from the Urban Institute show that states would spend $90 billion less on health care from 2014-2019 under the Affordable Care Act. This is because of the savings from uncompensated care and certain Medcaid eligibles rolling into programs with higher levels of federal support. In some states, they will actually save money from carrying out the full… Read more »

Barry Carol
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Barry Carol

Maggie – While I understand and appreciate the conceptual appeal of federalizing Medicaid, I still think it would have to be a separate program from Medicare because Medicaid is means tested and Medicare isn’t. I also think it would be helpful if there were an equivalent to Medicare Advantage (Medicaid Advantage) to enhance the potential for innovative solutions to control costs or offer a range of approaches so people could choose a plan that best meets their needs. The incremental costs to the federal government of taking over the states’ share of Medicaid costs would be very high at a… Read more »

Maggie Mahar
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Barry– Here is a good article on merging Medicare and Medicaid: http://www.newamerica.net/publications/policy/the_next_priority_for_health_care_federalize_medicaid “Merge” is actually a misleading word, medicaid would be “federalilzed” and many of administrative functions of Medicare could be expanded to include Medicaid. Having the states administer Medicaid is simply inefficent. As the author points out: “Federally run insurance programs like Social Security and Medicare are vastly more efficient and effective than federal-state counterparts like Medicaid and unemployment insurance. Economies of scale, uniform national rules, and the inability of 50 state governments to each do mischief to the programs have demonstrably led to far superior results for national… Read more »

Barry Carol
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Barry Carol

Maggie – I don’t see how Medicare and Medicaid could be merged into a single program when eligibility for Medicare is not means tested but it is for Medicaid. Besides, there has been a lot written recently about the enormous cost of providing care for the 9-10 million people eligible for both programs (dual-eligibles). The needs are very different for this group. The duals whose care is primarily paid for by Medicaid mainly have to do with long term care (nursing homes, home health care, etc.) while those whose care is paid for by Medicare need acute (hospital based) care.… Read more »

Jeff Goldsmith
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Jeff Goldsmith

Hospitals, even the for-profit ones, are not powerful enough by themselves to force Governors protecting their right flanks to opt-in. Hospitals, nursing homes and physicians rarely collaborate at the state level, and unlikely to be effective here. Medicaid is not a jobs program. It’s supposed to be purchasing services on behalf of the poor and near poor, and does a terrible job of same. The larger program would have been financed largely by further reductions in hospital, physician and nursing home payment, shrinking the percentage of providers that will take new Medicaid patients. If you go back and read the… Read more »