Fed's New Bargaining Power Over Medicaid

Steven D. Schwinn, John Marshall Law School

After the Supreme Court in NFIB v. Sebelius reduced the cost to states of declining to expand Medicaid under the ACA, or Obamacare, many states predictably declined to expand. The situation seemed to leave the federal government with little leverage to encourage states to expand Medicaid. That may be changing, at least in Florida.

Recall that the Court ruled in NFIB v. Sebelius that states could decline to expand Medicaid under the ACA and lose only the additional Medicaid expansion funding (and not their entire Medicaid budget). As a result, the federal government had little power to encourage states to expand their Medicaid programs, and, indeed, many states declined to expand--and thus declined to offer Medicaid coverage to millions of low-income individuals. Florida was one of those states, and, as a result, about 764,000 Floridians fell into a coverage gap.

But it turns out that the federal government, through the Centers for Medicare and Medicaid Services, runs another program touching on health-coverage for uninsured low-income individuals, the Low Income Pool. LIP provides federal funding to states to compensate hospitals and other providers for treating uninsured patients. The program currently provides about $2 billion per year to Florida, although Florida requested an increase to $4.5 billion.

The LIP renewal gives CMS leverage with the state to re-encourage Medicaid expansion, consistent with NFIB v. Sebelius. That's because LIP provides federal funds for medical coverage for substantially the same population that would be covered by Medicaid expansion (uninsured low-income individuals). In short, the federal government could pay states through LIP, or through Medicaid expansion. But it doesn't make sense to double-pay for the same services through both programs. So CMS can decline to renew Florida's LIP payments--and thus strongly encourage the state to adopt Medicaid expansion.

The gambit may be working: the state senate is now looking at Medicaid expansion (albeit with some of the strings that other states have put on their programs, like work requirements and co-pays). The state house reportedly still opposes expansion, however, and Governor Scott is careful to separate the two issues, LIP and Medicaid expansion, so as not to tie them in discussions with CMS. (Governor Scott wrote that he won't "backfill" a loss of LIP money with state funds. "Florida taxpayers fund our federal government and deserve to get a return on their investment.")

Depending on how this all plays out in Florida, this could be a model for encouraging Medicaid expansion in other states with LIP programs coming due.