One of the many questions that has arisen since the Supreme Court handed down its decision on the Affordable Care Act is whether a state could do a partial expansion – say to 100% of the poverty line — rather than 133% of FPL. This number is not plucked from the air but rather reflects the statutory parameters of the ACA which establishes eligibility for new federal premium tax credits starting at 100% of FPL (and rising to 400% of FPL).  So, the thinking goes, if a state could expand Medicaid to the poverty line rather than going all the way to 133% of FPL, nobody would fall through the cracks. Those under the poverty line would be eligible for Medicaid and those above would be eligible for federal tax credits.

So far Secretary Sebelius and her staff have not opined on whether they have legal authority to offer states a Section 1115 waiver to do just this. There are a number of complex legal and political issues no doubt for them to consider. As a long time waiver watcher, I think there are many reasons why HHS should not and cannot offer these kinds of waivers.

One of the key reasons from a policy perspective is that Section 1115 demonstration authority is intended to further the objectives of the program. It is hard to imagine that covering fewer people than Congress intended is furthering Medicaid’s objectives. And it is highly unlikely that such a waiver would be “budget neutral” for the federal government. Longstanding federal policy has always required that the federal government assess whether it will spend more under a Section 1115 waiver than it would have without. While this budget neutrality calculation has only applied to Medicaid expenditures in the past, this is not a statutory requirement. And as a recent Congressional Budget Office analysis found, covering an individual by offering a tax credit for use in the exchange rather than Medicaid coverage will cost the federal government $3,000 more. States would shift these costs to the federal government for individuals going into the exchange, which no doubt would lead many states to pursue this kind of waiver request should the door open.

On top of the increased cost to the federal government, individuals and families in states that went this route would pay more for this coverage as well! The ACA ties premium costs to income levels and families at this income level must pay 2% of their income towards the cost of premiums.  For a family of three at 120% of FPL this amounts to an annual cost of $458.16. Premiums for low-income  familie, state experience and research have shown, create burdens for these families that in some cases result in losing coverage.

So, once again Medicaid proves to be the most cost-effective and efficient route to provide coverage. While states would incur some costs by doing the expansion, as we have blogged about before,  they are very low and in some cases may actually result in savings due to reductions in other areas of state budgets (uncompensated care, mental health services, etc.).