Obama team willing to ‘Republicanize’ Medicaid, but maybe not enough for Indiana

Two events this week showed that the Obama administration is willing to be flexible with Republican governors who want to expand insurance coverage to their low-income citizens, but don’t want to use the traditional Medicaid program to do it.

That’s good news for Hoosiers hoping to see some sort of Medicaid expansion in Indiana, where Gov. Mike Pence wants to use the Healthy Indiana Plan as a vehicle expanding eligibility for Medicaid to all Hoosiers making up to 138 percent of the federal poverty limit.

Kathleen Sebelius, Obama’s secretary of health and human services, is on track to meet with Pence in Washington, D.C., in February to try to hammer out a deal.

Even more encouraging, in my mind, is the deal that Sebelius' agency offered to Iowa Gov. Terry Branstad, a Republican. Branstad wants to use the additional Medicaid funding authorized by the Affordable Care Act to help low-income consumers buy private insurance. Most importantly, the feds OK’d Iowa’s plan to require Iowans to pay 2 percent of their incomes in the form of insurance premiums.

That’s critical for Pence’s plan, because the Healthy Indiana Plan also requires contributions to a health savings account of at least 2 percent of participants’ incomes.

“In a weird way, Obamacare could end up changing the Medicaid program not just by making it bigger—but by making it more Republican, too,” wrote Sarah Kliff at Wonkblog after the Iowa deal was announced.

I somewhat agree with Kliff’s thesis that the Obama team is willing to “Republicanize” Medicaid in order to convince more states to expand eligibility for the program—a key part of Obamacare’s overall strategy for reducing the number of uninsured Americans.

But here’s the catch. The Obama administration told Iowa it could only charge those premiums to citizens above the federal poverty limit. That's $11,490 for a single adult and $23,550 for a family of four.

Branstad wanted to require premiums for Iowans making as little as 50 percent of the federal poverty limit.

In case that point wasn’t clear enough to Pence, Sebelius wrote in a letter on Wednesday that the additional Medicaid funding is simply not available to any state program that requires people making less than the poverty limit to contribute toward their insurance benefits.

That increased federal funding could be significant. Whereas the federal government currently pays two-thirds of the cost for the Indiana Medicaid program, the Affordable Care Act would pay 100 percent of the cost of expanding it, for the first three years, and then taper down to 90 percent by 2020.

“While we welcome ideas from Indiana as the state continues to work toward expanding Medicaid coverage, the increased federal matching rate is not available for a waiver that has enrollment caps or premium contributions to health savings accounts for people below the poverty level that affect eligibility,” Sebelius wrote. “In our view, the inclusion of such elements does not meet the intent of the Affordable Care Act or further the objectives of the Medicaid program.”

Sebelius appears to be referring to the provisions in the Healthy Indiana Plan that not only require contirbutions from its participants, but will kcik them off the plan if they fail to pay for two consecutive months. In Iowa, the Branstad administration has expressed willingness not to revoke participants' insurance coverage if they fail to pay their premiums.

Also, Sebelius' comment contains a further objection to the Healthy Indiana Plan—the fact that enrollment is capped based on the available revenue generated by the cigarette tax that funds the program.

That cap has kept enrollment in HIP, as the program is called, at about 40,000, or only one-third the total it was projected to reach when the state Legislature created in 2007. Expenses in the program, while lower than in traditional Medicaid, have still been twice as high as projected at the program’s launch.

But the enrollment cap is a coveted feature of HIP for Pence and, perhaps even more so, for his fellow Republicans in the state Legislature. They note that the Medicaid program has ended up costing the state far more than predicted when it was first adopted in 1970.

They fear the expansion could overwhelm the state’s budget.

Pence and his team did agree to tweak elements of the enrollment restrictions in the one-year extension deal they signed with the Obama administration in August. But Pence has been adamant that some elements of cost-sharing must remain.

“However, in order to expand the Healthy Indiana Plan, it is essential that the State be able to maintain the consumer-driven model on which the program is predicated,” Pence wrote to Sebelius in a Nov. 15 letter.

Since, beginning next year, eligibility for HIP will be restricted to Hoosiers making less than the federal poverty limit, the issues Sebelius raised are directly relevant to whether the program continues or not. It is scheduled to expire on Dec. 31, 2014.

While I find the Iowa deal and the flexibility shown by both sides to be somewhat positive for the prospects of using HIP to expand Medicaid in Indiana, I still expect the February meeting to be a showdown of two very different philosophies on whether health care is a right and on the best way to fight poverty.

It’s anyone’s guess if either side blinks and, if so, who blinks first.