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The Supreme Court’s Surprise Medicaid Ruling

by Benjamin Domenech on July 2, 2012

The Supreme Court’s decision on the constitutionality of PPACA included a shocking 7-2 ruling on the Medicaid expansion, which had been widely viewed on the right as the weakest argument advanced before the Court, but nonetheless resulted in a victory for federalism. States can now reject the Medicaid expansion mandated under Obamacare while retaining their original funding stream. Dan McLaughlin:

“The Court has warned for years that, while Congress could attach strings to federal spending, it could not simply coerce states into doing its bidding. Chief Justice Roberts, joined by Justices Breyer and Kagan and with the agreement of the four Republican-appointed Justices, finally put some teeth in this warning, holding that the size of Congress’ threat amounted to “a gun to the head” of the states that Congress could not be permitted to use. But Roberts, joined by Breyer and Kagan, concluded that Congress could reasonably threaten to withhold only the funding for the expansion of Medicaid and not pre-existing funding for the entire program. That split decision may allow some governors the wiggle room, if they want it, to say no to Congress, but it allows the budget-busting expansion of Medicaid to go forward in any state that accepts the new rules.”

The effect will likely massively increase the deficit, as it will allow states which pass on the implementation of an exchange (as many as 30 states as of this writing) to shift people in the 100-138 FPL category onto the federal docket. Avik Roy explains:

“Democrats structured the law this way because Medicaid is much less expensive, on a per-person basis, than are the subsidized exchange plans. In addition, Medicaid is partially funded by the states. However, now that states can opt out of the law’s Medicaid expansion, states that currently cover people above 100 percent of FPL with Medicaid now have a significant financial incentive to shrink Medicaid eligibility down to 100 percent of FPL, and let the federal government (read: taxpayers in other states) pay for the rest. This, again, will lead to substantially higher costs for the federal government, because exchange subsidies are much more generous than Medicaid is.”

This now combines with the exchange implementation discussion, and it will be the number one issue debated among state legislators in the next few months. Already fifteen states have suggested they will pass on the Medicaid expansion.

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