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Obama Threatens to Pull Federal Funding from States Refusing Medicaid Expansion

May 19, 2015

“Expand Medicaid or else!” That’s the message the Obama administration sent to Florida, Kansas, Tennessee, and Texas.

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“Expand Medicaid or else!”

That’s the message the Obama administration sent to Florida, Kansas, Tennessee, and Texas. President Barack Obama has threatened to withdraw special funding to pay for hospitals and doctors for impoverished citizens if the states in question do not comply.

The Centers for Medicare and Medicaid Services gave officials in those states the same message: Expand Medicaid or risk losing federal funding for “uncompensated care pools,” Medicaid money that helps pay for health care for the uninsured.

Florida could lose out on $1.3 billion in uncompensated care funding if the state decides not to expand Medicaid. Gov. Rick Scott (R) is threatening to sue the Obama administration if it cuts funding, which is set to expire June 30.

Forcing States to Reconsider

The U.S. Supreme Court ruled the federal government could not force states to expand Medicaid under the Affordable Care Act (ACA), but the Obama administration has taken a different track to accomplish the same goal.

Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, says the Obama administration is targeting hospitals that deal with a high percentage of low-income people who receive funds through the Medicaid and Medicare Disproportionate Share Hospital (DSH) programs in an effort to force Medicaid expansion.

Stark says the architects of ACA assumed the number of uninsured and underinsured people would drop precipitously beginning in 2014, when states expanded Medicaid. Hospitals in states that did not expand Medicaid are now facing a decrease in DSH funding with no offset in reimbursement from Medicaid.

“Basically, the federal government is now forcing non-expansion states to reconsider,” Stark said. “Each of these states must do a cost analysis. State taxpayers may still be better off without expansion, and there is no question federal taxpayers would be better off without expansion.”

Federal Pay to Play

The federal government has historically provided additional money to hospitals with a disproportionate share of uninsured patients to cover some of those costs, says Merrill Matthews, a resident scholar with the Institute for Policy Innovation.

“Obamacare’s creators envisioned near-universal coverage … so [they] planned to sunset those additional funds,” Matthews said. “They never anticipated that about half of the states, thanks to a Supreme Court ruling, would refuse to expand Medicaid.”

Matthews says in an attempt to work around the Supreme Court ruling, federal officials have reverted to an old-but-effective tactic: Tell the states that if they want federal “pay,” they have to “play.”

“The real scandal here is the citizens of states send their tax dollars to Washington, DC and the feds will only let them have their money back if they do what Washington wants them to do,” Matthews said. “It would be a great campaign theme for the various presidential candidates: The only tax money going to Washington should be for what the federal government needs to fulfill its limited, constitutional obligations.”

Federal Coercion

Greg Scandlen, founder and director of Consumers for Health Care Choices and a senior fellow at The Heartland Institute, which publishes Health Care News, says although the Supreme Court has already ruled the states cannot be coerced into expanding Medicaid, the Obama administration seems to be focused on its own whims and preferences.

“The federal government has long made funds available to hospitals that serve large numbers of poor and uninsured,” Scandlen said.

These funds used to be known as disproportionate share payments, Scandlen says. That money has continued to be sent to hospitals because coverage expansions do not fully solve the problem of uncompensated care. Now, the Obama administration is threatening to cut off those funds to any state that has not expanded Medicaid, even though the Supreme Court has ruled such expansions must be left to the states.

“The administration argues states which expand Medicaid will not need as much uncompensated care money,” says Scandlen. “That may or may not be true, but it shouldn't matter to the federal government because it is providing the funds in either case—in the form of Medicaid payments or in the form of uncompensated care payments. Which method of providing care is better for its own people should be a state decision.”

Sean Parnell (sean@impactpolicymanagment.com) is a policy advisor to The Heartland Institute and president of Impact Policy Management, LLC.

Author
Sean Parnell (sparnell@heartland.org) is a research fellow for health policy at The Heartland Institute.
sparnell@heartland.org @seandparnell