WASHINGTON -- The Obama administration has quietly reversed its support for a policy that would cut billions in Medicaid funding. The move this week means that Medicaid's $389 billion budget is not likely to be a major factor in deficit-reduction negotiations.
It's a surprising turn of events for health care advocates, who had opposed the cut. And the reason for the switch is equally surprising, because it is rooted in the Supreme Court ruling in June that the Affordable Care Act's expansion of Medicaid must be voluntary, leaving it in the hands of many reluctant governors. That decision appears to have made the White House reluctant to cut Medicaid at the same time it is trying to woo governors into full participation.
Advocates have come to see that as a big plus.
"There's a deep realization among Democrats that the Supreme Court altered the dynamic on Medicaid," said Neera Tanden, president of the left-leaning Center for American Progress.
Ron Pollack, executive director of the health care advocacy group Families USA, said, "I have participated in many different types of meetings that included White House staff, and there's a strong conviction that Medicaid really deserves the highest protection." He added, "The Supreme Court decision changed the dynamic of the process in a way that requires stronger protection of federal funding to the states."
Robert Greenstein, president of the Center on Budget and Policy Priorities, recalls asking President Barack Obama about the issue at a White House meeting Nov. 13 with progressive groups. "He was very sympathetic," Mr. Greenstein said. "They don't want to jeopardize this."
The Affordable Care Act initially required all states to expand Medicaid to cover everyone whose income fell below 133 percent of the federal poverty line -- about $15,000 annually for an individual. The Congressional Budget Office projected that about half of the 32 million Americans expected to gain coverage under the law would do so through Medicaid. Then, the Supreme Court in June found that the requirement was unconstitutional, leaving states to decide whether to participate. The CBO revised its forecasts, estimating that 3 million fewer Americans would gain coverage.
Seven states have indicated that they will not participate, according to the consulting firm Avalere Health. Eighteen states have signed on -- including one, Nevada, that has a Republican governor. That leaves 25 undecided states that the White House must woo into the program. "We'll continue to work side by side with states, giving them the guidance they need to move forward," Marilyn Tavenner, acting administrator of the Centers for Medicare & Medicaid Services, told reporters on a recent call.
Ms. Tavenner announced Monday that the White House no longer supports a tweak to Medicaid that it sought in last year's budget, which would have reduced funding for the program by $17.9 billion over the next decade.
"You couldn't get a more direct indication of how the federal government is trying to make sure that the states implement the expansion," Mr. Pollack said of the decision. "They're trying to show there aren't going to be dollars taken away from them."
While the federal government usually pays a portion of states' Medicaid costs, it will foot the complete bill for all newly eligible enrollees brought in under the Affordable Care Act. The federal share falls to 90 percent in 2020, still well above traditional match rates. Any cuts to Medicaid now, the thinking goes, could make governors queasy about signing up for the program's largest expansion since its creation in 1965.
"Governors are already talking about the expansion like it could be a bait-and-switch," said Shawn Gremminger, a lobbyist for the National Association of Public Hospitals and Health Systems, which supports the expansion. "If I'm Rick Scott [of Florida] or Rick Perry [of Texas], and I'm trying to find an excuse not to participate, I would point to any cuts now and say, 'You were trying to cut us before we even expand.' "
Mr. Gremminger is not especially worried about Medicaid cuts during this round of deficit-reduction talks. He thinks the White House has too much to lose if it signals to governors that it is not committed to fully funding the program.
"We're in some ways protected by a Supreme Court decision that we did not like," he said. "There is a silver lining. Now, there's a real incentive here in D.C. to protect this program, so that you get a full Medicaid expansion."
Top Democratic legislators say protecting Medicaid has taken on new significance in this round of deficit-reduction negotiations, with the future of the Affordable Care Act hanging in the balance.
"I do think it would send the wrong signal to states," said Maryland Rep. Chris Van Hollen, top Democrat on the House Budget Committee. "I don't think that we should do anything that signals a reduction in the federal commitment to Medicaid, because that would raise concerns that ultimately states would be left on their own. That would mean they would be less inclined to participate."
Governors, meanwhile, are watching the talks closely. Mr. Greenstein, of the Center on Budget and Policy Priorities, recalls briefing Democratic governors before the National Governors Association's summer meeting in Williamsburg, Va. A handful raised concerns that funding for the provision may not be stable.
"The states' decisions are probably the single most consequential decisions for Medicaid in 40 years," he said. "The White House understands that. This is the single issue where the savings they're pursuing are less significant than the ones proposed in their 2013 budget."