January 2013 Volume 9 Number 5

CMS Mostly Precludes Partial Medicaid Expansion Under the Patient Protection and Affordable Care Act

By Steven W. Postal, Strategic Health Care, Washington, DC1

AuthorOn December 10, the Obama Administration in a memo via the Centers for Medicare & Medicaid Services (“CMS”) commented that states must expand their Medicaid programs under the Patient Protection and Affordable Care Act (“PPACA”) to cover those earning up to 133 percent of the federal poverty level (“FPL”), or forgo expansion entirely.2 The federal government will cover 100 percent of the cost of new Medicaid enrollees in 2014, 2015, and 2016, and incrementally less until 2020, when it will cover 90 percent then and thereafter.3 Although dropping to 90 percent is a decrease, this is still a much higher federal match rate than in the existing Medicaid program, which varies from 50 to 78 percent, depending on the state.4

Medicaid Expansion Under ARRA and PPACA

Under the American Recovery and Reinvestment Act (“ARRA”) of 2009, states could receive increased matching funds only if they did not have “Medicaid eligibility standards, methodologies, and procedures” that were more restrictive than those in place on July 2008.5 This principle of conditioning federal matching funds to states not being able to restrict eligibility was later codified in PPACA. Under PPACA, states can only receive federal matching funds if they refrain from making their Medicaid eligibility requirements more restrictive from the time of PPACA’s passage up until the time that the Secretary of Department of Health and Human Services ("HHS") determines that a health insurance exchange is “fully operational” in that state.6 In this way, the federal government was able to maintain leverage over the states in Medicaid reform.

Gubernatorial Preferences and the Administration’s Position

Several states had advocated offering Medicaid just to those earning up to 100 percent of the FPL.7 For individuals earning from 100 percent to 133 percent of the FPL, states favoring partial expansion wanted to either put individuals earning from 100 to 133 percent of the FPL in health insurance exchanges8 or give them federal subsidies.9

Eleven Republican governors sent President Obama a letter on December 3, 2012 requesting to meet to discuss the healthcare law, including its implications for Medicaid.10 Specifically, the governors requested the ability to “innovate and tailor solutions to the needs of their citizens,” expressed concern about enrolling more people to Medicaid, and provided suggestions about reforming Medicaid.11

While the Administration did not respond formally to the December 3rd letter, on December 10 it issued the 17-page CMS memo mentioned above. While also addressing health insurance exchanges and market reforms, the memo mostly precluded the use of partial Medicaid expansion, a compromise supported by some governors. In response, on that same day, eleven governors sent President Obama a second letter requesting a meeting.12 In this letter, the governors requested that the states receive federal funds while being allowed to determine their own criteria for Medicaid eligibility.13 The governors also proposed “reasonable and enforceable-cost sharing requirements” and expressed concern that determining eligibility for Medicaid expansion would be an “overly difficult” and costly “audit procedure.”14 The governors also expressed a desire to incorporate the use of private insurance companies more and government entitlement programs less.15

While explicitly stating that “the law does not provide for a phased-in or partial expansion,” the CMS memo left open the option for a state to pursue a partial expansion of Medicaid to less than 133 percent of the FPL so long as it does so through a demonstration “to the extent that it furthers the purposes of the program, subject to the regular federal matching rate.”16

Varied Reactions to CMS Memo

There has been much support from both hospitals and government for full expansion. Bruce Siegel, President and CEO of the National Association of Public Hospitals and Health Systems applauded CMS’s decision, stating that “[t]he agency’s guidance follows the letter and spirit of the law and takes an important step toward significantly reducing the ranks of the uninsured.”17 Molly Collins Offner, the American Hospital Association’s director for policy, stated that regarding Medicaid expansion generally, “[w]e would encourage states to continue going down this path.”18 According to a recent study conducted by the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured, hospitals would capture over $300 billion more in revenues for 10 years beginning in 2014 under full Medicaid expansion due to a corresponding decrease in uncompensated care costs.19 Cindy Mann of CMS lauded the “very significant federal support…[which is] unlike any other federal support that’s been provided to any other coverage initiative.”20 Stan Dorn of the Urban Institute stated that full Medicaid expansion is “a complete no-brainer,” and that “it has not hurt the states financially, it has helped the federal budget and it has helped improve access to care for poor people.”21 Dorn also stated that putting all of the new enrollees on Medicaid expansion rather than having some on the health insurance exchanges is a more economical solution for states.22

But others expressed skepticism. Drew Gonshoroswki, a policy analyst with the Heritage Foundation, commented that while states would benefit from the federal government paying for 100 percent of the expansion in the first three years, states may have to use funding marked for other programs or increase taxes to pay for the states’ share of expansion.23 Some believe that 90 percent payment from the federal government is dubious. Douglas J. Holtz-Eakin, former director of the Congressional Budget Office, questioned the ability of states to “continue to get 90 percent of the cost of the expansion forever, given that the federal government has no money.”24 Gov. Bobby Jindal (R-LA) found the removal of the idea of partial expansion (aside from the demonstration project option mentioned above) “as disheartening as it is shortsighted.”25

Cuts to Medicaid DSH Payments Impact Decision to Expand Medicaid

The reduction of Medicaid Disproportionate Share Hospital (“DSH”) Payments, which were originally given to states to defray costs of providing uncompensated care, may serve as a strong incentive for states to proceed with Medicaid expansion. Specifically, under PPACA the federal government will fund $17.1 billion less in Medicaid DSH Payments from FY 2014 through FY 2020, with the circular logic that fewer people will be uninsured thanks to Medicaid expansion and health insurance exchanges.26 Therefore, a state that would not undergo Medicaid expansion would face continued uncompensated care costs without federal ameliorative assistance. An October 2012 report by the National Association of Public Hospitals and Health Systems projected that with decreased Medicaid DSH payments, as well as states rejecting Medicaid expansion, uncompensated care costs will be $53.3 billion greater by 2019 than originally predicted when Congress passed PPACA.27

The Current Situation

Given that the Supreme Court ruled in June that Medicaid expansion is optional, states can choose whether or not they want to undergo expansion.As of this writing, fourteen states and the District of Columbia are participating, five states are leaning towards participating, nine states are not participating, five states are leaning towards not participating, and seventeen states are undecided or have no comment.28 Given that CMS has expressly stated that there is no deadline for states to tell the federal government its decision on whether or not to expand their Medicaid programs, the future of Medicaid expansion remains to be seen.29

1Opinions expressed herein are attributable to the author only and are not those of Strategic Health Care.
2133% of the FPL is an annual income of $14,856 for one person, and $30,657 for a family of four. See John Commins, “HHS Details Limits to Medicaid Expansion,” HealthLeaders Media, December 11, 2012, https://www.healthleadersmedia.com/content/HEP-287318/HHS-Details-Limits-to-Medicaid-Expansion. See also Louis Radnofsky, “Feds Nix Partial Medicaid Expansion,” The Wall Street Journal, December 10, 2012, http://online.wsj.com/article/SB10001424127887324339204578171771723635076.html.

“Frequently Asked Questions on Exchanges, Market Reforms and Medicaid,” Centers for Medicare & Medicaid Services, December 10, 2012, available at http://cciio.cms.gov/resources/files/exchanges-faqs-12-10-2012.pdf, page 11.


N.C. Aizenman, “GOP Governors Seek Leeway on Medicaid Expansion,” The Washington Post, December 8, 2012, http://www.washingtonpost.com/national/health-science/gop-governors-seek-leeway-on-medicaid-expansion/2012/12/08/80ab2e72-3e52-11e2-ae43-cf491b837f7b_story.html.


“American Recovery and Reinvestment Act of 2009 Frequently Asked Questions from States,” Centers for Medicare & Medicaid Services, July 7, 2009, http://www.cms.gov/Regulations-and-Guidance/Legislation/Recovery/downloads/ARRA_FAQs.pdf.


“Medicaid Expansion: States’ Implementation of the Patient Protection and Affordable Care Act,” United States Government Accountability Office, August 2012, http://www.gao.gov/assets/600/593210.pdf, page 12. See also PPACA § 2001(b)(1)-(3), 124 Stat. 275-76.


Bret Norman and Kyle Cheney, “HHS It’s All or Nothing on Medicaid Expansion,” Politico Pro, December 12, 2012, available at http://www.politico.com/story/2012/12/hhs-no-partial-funding-of-medicaid-expansion-84935.html.



9N.C. Aizenman, “GOP Governors Seek Leeway on Medicaid Expansion.”

The letter was sent on behalf of the Republican Governors Association. Signatories included Govs. Jan Brewer (AZ), John Kasich (OH), Bobby Jindal (LA), Bob McDonnell (VA), and Rick Scott (FL). See Tia Mitchell, “Gov. Rick Scott, other GOP Governors Want Health Care Meeting with Obama,” Tampa Bay Times, December 5, 2012, http://www.tampabay.com/news/health/gov-rick-scott-other-gop-governors-want-meeting-with-president-barack/1264647.

11See N.C. Aizenman, “GOP Governors Seek Leeway on Medicaid Expansion,” and Tia Mitchell, “Gov. Rick Scott, other GOP Governors Want Health Care Meeting with Obama.”

Since the author was unable to obtain copies of the two letters from publically available sources, he does not know who the eleven governors were or if they were the same governors in both letters. See Kelli Kennedy, “GOP Governors Including Rick Scott Want to Talk Health Care With Obama,” The Ledger, December 12, 2012, http://www.theledger.com/article/20121212/POLITICS/121219733?p=1&tc=pg.






“Frequently Asked Questions on Exchanges, Market Reforms and Medicaid,” page 11.


Bruce Siegel, MD, MPH, “NAPH Statement on CMS Medicaid Expansion Guidance,” National Association of Public Hospitals and Health Systems, December 10, 2012, http://www.naph.org/Main-Menu-Category/Newsroom/2012-Press-Releases/20121210medicaidexpansionstatement.aspx?FT=.pdf.


Jennifer Lubell, “Hospitals Expected to Benefit Two Ways From Medicaid Expansion,” American Medical News, December 10, 2012, http://www.ama-assn.org/amednews/2012/12/10/gvsc1210.htm.



20Louis Radnofsky, “Feds Nix Partial Medicaid Expansion.”
21Bret Norman and Kyle Cheney, “HHS It’s All or Nothing on Medicaid Expansion.”
23Lubell, “Hospitals Expected to Benefit Two Ways From Medicaid Expansion.”
24N.C. Aizenman, “Partial Medicaid Expansions Won’t Get Full Federal Funding, Administration Tells States,” The Washington Post, December 10, 2012, http://www.washingtonpost.com/national/health-science/partial-medicaid-expansions-wont-get-full-federal-funding-administration-tells-states/2012/12/10/e412eb86-4306-11e2-8e70-e1993528222d_story.html.
25Louis Radnofsky, “Feds Nix Partial Medicaid Expansion.”
26Corey Davis, “Q & A: Disproportionate Share Hospital Payments and the Medicaid Expansion,” National Health Law Program, July 2012, http://www.apha.org/NR/rdonlyres/328D24F3-9C75-4CC5-9494-7F1532EE828A/0/NHELP_DSH_QA_final.pdf., page 4, and footnote 22: “For Medicaid DSH reductions, see Affordable Care Act (ACA), Pub. L. No. 111-148, § 2551(a), 124 Stat. 119, 312-314 (2010) (amending 42 U.S.C. § 1396r-4(f)); id. § 10201(e)(1), 124 Stat. at 920-922 (amending 42 U.S.C. § 1396r-4(f)); Health Care and Education Reconciliation Act of 2010 (HCERA), Pub. L. No. 111-152, § 1203, 124 Stat. 1029, 1053-1055 (amending 42 U.S.C. § 1396r-4(f)).”
27Alicia Caramenico, “Hospital DSH Payments to Plummet without Medicaid Expansion,” FierceHealthCare, January 2, 2013. http://www.fiercehealthcare.com/story/hospital-dsh-payments-plummet-without-medicaid-expansion/2013-01-02?utm_medium=nl&utm_source=internal. See also “Need for a Sustainable Solution: Restoring the Balance In Safety Net Financing,” National Association of Public Hospitals and Health Systems, October 2012, http://www.naph.org/Links/ADV/NAPHuncompensatedcareanalysis.aspx.
28“Where Each State Stands on ACA's Medicaid Expansion,” The Daily Briefing, December 12, 2012. Available online at http://www.advisory.com/Daily-Briefing/2012/11/09/MedicaidMap#lightbox/0/.
29“Frequently Asked Questions on Exchanges, Market Reforms and Medicaid,” page 11.

The ABA Health eSource is distributed automatically to members of the ABA Health Law Section . Please feel free to forward it! Non-members may also sign up to receive the ABA Health eSource.