On The Hook

States may be left holding Obamacare tab after Supreme Court ruling

June 27, 2012

The highly anticipated Supreme Court ruling on Obamacare could leave overzealous state governments holding the bag on expensive Medicaid and health insurance programs.

The 2010 health care overhaul charged states with creating insurance exchanges, which would allow lower income residents and those without health insurance to join in healthcare pools offered by major insurers. It also asked states to prepare technological changes to their health systems and hospitals, as well as prepare for Medicaid reforms with 2014 as a target date for getting the changes up and running.

Some states, however, embraced the reforms faster than others—and could face huge budget increases as a result.

Democratic Minnesota Gov. Mark Dayton expanded Medicaid eligibility to childless low-income adults upon entering office in 2011—three years ahead of the Affordable Care Act’s scheduled implementation. The early implementation qualified Minnesota for increased reimbursements from the federal government to cover 95,000 new users.

The result has been a $4 billion per year program that has attracted four federal investigations into the program’s high cost.

"Gov. Dayton was gung ho about holding all of these meetings about what the world would look like under Obamacare, and we saw taxpayer dollars go right out the window," said Republican state Rep. Mary Franson. "Now for political reasons, you can’t just kick people out [of Medicaid] because they have become dependent; it’s a terrible situation."

If the Supreme Court strikes down Obamacare on Thursday, Minnesota will lose the dollar-for-dollar Medicaid match the federal government planned to provide state governments.

However, striking down the law would not overturn the state’s generous expansion, leaving Saint Paul lawmakers to pick up the growing costs of the program with the federal government reimbursing 50 to 65 percent of its costs.

Ben Domenech, a healthcare expert at the conservative Heartland Institute, argues that states have also developed dependencies on federal cash.

"All these states had to do was expand their eligibility and they could get ‘free government money,’ but if the entire bill is thrown out, they won’t have these billions in subsidies that they were promised," he said.

Franson, along with several other lawmakers, fought Dayton’s Medicaid expansion and have obstructed his attempts to establish a state health insurance exchange, leading to a deadlock at the end of the 2012 session.

The stalemate stemmed from the governor’s resistance to a provision designed to shield the state from the Supreme Court ruling, she said.

"One of the clauses in the Republican exchange was a sunset clause so the exchange would go away if Obamacare was overturned," she said. "Because once a program is put in place, it never goes away."

Sunset clauses—in Minnesota and elsewhere—have been a hot topic in dozens of states. After Obamacare established the framework for state-based exchanges, several states included such provisions in the event courts deemed Obamacare unconstitutional.

Not every state has been so circumspect, however. The administration has attempted to entice legislatures to speed up the design of the exchanges, shelling out more than $4 billion to state governments, including $1.2 billion for exchange developments, according to Domenech.

"The Department of Health and Human Services has essentially cut deals with states to hop on the bandwagon," Domenech said.

The Department of Health and Human Services (HHS) used more than just carrots to move legislation at the state level. Obamacare imposes strict deadlines to have health exchanges up and running by 2014. Any state that has not established an exchange by that time will have to implement a federally designed plan.

"There’s been enormous pressure from the insurance industry, foundations, and the federal government," Domenech said. "It’s easy to see why: It factored into the legal arguments surrounding the case, made the judges more skeptical of the law."

Florida District Court Judge Roger Vinson declared Obamacare unconstitutional last year partly because states were skeptical of adopting the provisions of the bill ahead of court rulings.

"Many of the plaintiff states have publicly represented that they will immediately halt implementation of the Act in light of my declaratory judgment, while at least eight plaintiff states (as identified by the defendants in their motion and reply) have suggested that, in an abundance of caution, they will not stop implementing the Act pending appeal," he wrote.

Judge Vinson also noted that several states affirmed the act, saying they would continue through with state exchanges despite his ruling.

The American Enterprise Institute’s Tom Miller said that about 15 states had drafted rough outlines of their exchanges. Those states may soon find their programs gutted.

"The federal side would be nullified and while some states have skeletal outlines completed, they’d be lacking the jet fuel of premium taxes and regulations to push insurance companies in the exchange to prop them up," he said.

Overturning Obamacare, Miller said, would leave states alone to coax insurance companies into exchanges, and he predicted that many would abandon their plans.

Franson, the Minnesota legislator, is relieved that the damage of the exchange debates applied to lawmakers, rather than residents and state health officials, who would have to sort out the new burden of regulations and taxes.

"There will be a smile on my face if that ruling comes down and we can reform our health system on our own terms," she said.