High court ruling opens Medicaid escape hatch for states

While upholding President Obama’s health care law, the U.S. Supreme Court on Thursday also opened an escape hatch for states that do not want to take on the project of expanding their Medicaid programs.

Whether Indiana decides to opt out of the expansion—which was projected to cover an extra 500,000 Hoosiers, remains to be seen. But the ruling will give states more leverage with the federal government to create favorable arrangements, noted Mike Grubbs, a health care attorney at Barnes & Thornburg LLP in Indianapolis.

“It changes the states’ bargaining position from ‘boot on neck’ to traditional bargaining,” Grubbs said. He added, “If they choose to expand Medicaid, they don’t have to do it through traditional Medicaid. I think it’ll give more flexibility to the states in how they propose to do that.”

For example, Grubbs said, the Obama administration might be more likely to approve Gov. Mitch Daniels’ proposal to expand Medicaid coverage by using his Healthy Indiana Plan, which creates health savings accounts for low-income Hoosiers. The Obama administration had delayed ruling on Daniels’ proposal, pending the Supreme Court decision.

Traditional Medicaid is a state-federal health insurance program for low-income citizens under which Indiana pays about 25 percent of the costs.

Daniels spoke out forcefully against the expansion when the law was being debated and just after it passed in March 2010. His office did not issue a response to the Supreme Court’s ruling Thursday before IBJ Daily’s deadline.

But Daniels is on his way out of office and will be replaced by Republican Mike Pence or Democrat John Gregg in January. So the decision might ultimately fall to the winner of that contest.

The Medicaid expansion would raise elgibility for the program to people with incomes up to 133 percent of the federal poverty limit. Currently, adults in Indiana can only qualify for Medicaid coverage if their incomes are no more than 26 percent of the federal poverty level, although the income thresholds are higher for children and mothers with children.

Dr. David Orentlicher, a law professor and former state legislator, said he does not expect Indiana to opt out entirely from the Medicaid expansion.

“I think we’ll see few people opt out of the Medicaid expansion,” said Orentlicher, who is co-director of the Hall Center for Law and Health at the Indiana University McKinney School of Law in Indianapolis. “The new Medicaid costs to the states really don’t kick in for a while. What they’re really worried about is the impact of the individual mandate on the Medicaid expansion.”

Orentlicher was referring to the likelihood that the health law’s requirement for all Americans to obtain health insurance coverage—the individual mandate—would lead more Hoosiers who are currently eligible for the Medicaid program to sign up, thereby driving up the state of Indiana’s costs.

Indiana will have no new federal aid to help pay for such an occurrence. However, for Hoosiers that qualify for Medicaid under the new, higher income thresholds, the federal government will pay for all of their Medicaid coverage.

Still, an analysis of the law commissioned by the Daniels administration found that expanding Medicaid to 133 percent of the federal poverty limit could, by itself, cost the state an extra $95 million per year.

"This is going to be an immorally—and I choose that word carefully—immorally huge burden we're about to place on our children,” Daniels said in a speech to the Economic Club of Indiana shortly after the health care law passed.

Otherwise, the Supreme Court ruling left the rest of the Patient Protection and Affordable Care Act in place by ruling that the controversial individual mandate can be enfored under Congress’ powers to tax.

Chief Justice John Roberts joined the Court’s four liberal justices in affirming that view. Roberts, however, also agreed with the four conservative justices who dissented from the ruling in their finding that the individual mandate could not be justified under Cogress’ power to regulate interstate commerce.

Lawyers for the Obama administration had advanced both arguments in their defense of the law in March.

The ruling had wild effects on health care stocks. Indianapolis-based WellPoint Inc. saw its share price plunge nearly 8 percent right as the court starting reading decisions Thursday morning—but before the substance of the health care ruling was known.

The New York Stock Exchange halted trading of the health insurance giant’s shares until after the ruling, and WellPoint’s shares recovered some of their losses.

In a statement, WellPoint spokeswoman Kristin Binns said, “The road to implementing health care reform will be a challenge; however, we look forward to working constructively with policymakers and other key stakeholders to build a health care delivery system that provides security and affordability to all Americans.”

Some hospital stocks spiked on the news—since the law’s attempts to insure 30 million more people should bring them more paying customers.

The same will likely be the case for medical device and drug firms, such as Indianapolis-based Eli Lilly and Co.

“Even with today’s decision, we expect that the debate about health care and health coverage will continue, and that further reforms and changes are likely in the years ahead,” Lilly CEO John Lechleiter said in a statement.

That’s largely because government budgets are already crimping payments to hospitals, drug companies and medical device firms. Belt-tightening by private employers is adding to the effect.

That is why many predicted that the trend of health care reform would have continued even if the Supreme Court had struck down the law. Thursday’s ruling just makes the coming changes a certainty, noted Ken Weixel, a senior advisor at the Deloitte Center for Health Solutions.

“It’s kind of, here we go,” Weixel said.