Are States “free to drop out of the Medicaid expansion if they choose to”?

August 17th, 2014

At the NYTimes Upshot, Uwe Reinhardt–who testified at one of the first ACA hearings back in 2010–explains that the Medicaid expansion is a deal too good for a state to turn down. He also explains that there is no downside, and that “states are free to drop out of the Medicaid expansion if they choose to.”

Some governors and other Republicans have expressed fear that, in the end, the federal government will just renege on the deal now being offered, leaving the states to pick up the entire tab of the Medicaid expansion. There actually is no historical precedent for this in Medicaid. But according to a federal document addressing frequently asked questions about the Affordable Care Act, states are free to drop out of the Medicaid expansion if they choose to.

The document Reinhardt cites is an FAQ from December 10, 2012, 5 month after NFIB v. Sebelius was decided. Question 25 is:

25. If a state accepts the expansion, can a state later drop out of the expansion program?

A. Yes. A state may choose whether and when to expand, and, if a state covers the expansion group, it may decide later to drop the coverage.

Of course this is legally true. States are free to join or drop the Medicaid expansion whenever they so choose. That was never the issue. The issue is what would happen to the state’s Medicaid budget if they did not play ball with HHS. As I explain in Unprecedented, and in this post, HHS originally took the position that if a state refused to comply with the expansion, it would lose its *entire* ACA budget. All of it. The Medicaid Expansion, as originally drafted, was designed to punish uncooperative states.

But then NFIB changed things. The Chief’s controlling opinion found that HHS could not force the states to join the expansion, as there was no real choice. The Court then rewrote the statute (as it did with the mandate), and gave states the option to decide to opt into the mandate. Texas,and other states have chosen not too–leaving a lot of money on the table, as Reinhardt noted. But, the decision to opt in a decision a state makes once, and only once. There’s no meaningful way to exit without bankrupting the state, and risks losing the entire Medicaid budget. While HHS would not disclaim that power during arguments in NFIB. it is a power they sought to retain.

Reinhardt’s post is technically accurate, but it omits the fact that states, once a part of the expansion, risk losing their entire budgets if they are ever to leave. This is hardly being “free to drop out” at their convenience.