American Journal of Law & Medicine

State Fiscal Considerations and Research Opportunities Emerging from the Affordable Care Act's Medicaid Expansion


As enacted, the Affordable Care Act (ACA) directed states to provide Medicaid coverage to most nonelderly adults with incomes up to 138% of the Federal Poverty Level (the "Medicaid expansion group") beginning in 2014. (1) The Medicaid expansion provision of the ACA is an integral component of fulfilling the ACA's primary objective to achieve near-universal health insurance coverage rates across the United States.

Title XIX of the Social Security Act (Title XIX) is Medicaid's enabling statute. Medicaid is a medical assistance program for certain low-income individuals, jointly funded and administered by federal and state governments. Certain features of the Medicaid program provide a framework within which the ACA and subsequent Supreme Court decision National Federation of Independent Business (NFIB) v. Sebelius can be understood.


Prior to the ACA, the Federal Medicaid statute provided funding to state Medicaid programs for benefits provided to some, but not all, categories of low income or so-called "financially needy" individuals. These categories of eligible low-income populations corresponded to eligibility criteria applicable to the federal programs of cash assistance--one for families and dependent children (known as "TANF-related"), and another for persons aged 65 and older or with "permanent and total" disability or blindness (known as "SSI-related"). Thus, the eligible low-income groups, defined as "categorically-eligible" groups, were: (1) children; (2) parents with dependent children; (3) adults aged 65 and over; and (4) adults with a disability or blindness. (2)

The ACA greatly expanded the categories under which a low-income individual could be eligible for Medicaid, discussed in Part II.A. 1 infra. After the ACA's passage, states that implement the new expansion provision in their Medicaid programs are entitled to federal funding for all of their newly incurred healthcare service costs for "newly eligible" individuals until 2017, when still the vast majority of those costs are federally funded. (3) Before the United States Supreme Court reviewed the expansion provision, the ACA was interpreted to allow CMS to withhold some or all of a state's Federal Medicaid funds for its preexisting Medicaid programs if it did not comply with the Medicaid expansion requirements to cover the "newly eligible" individuals. (4)


The Centers for Medicare and Medicaid Services (CMS) is in charge of administering funding to State Medicaid programs, among its other duties. Federal Medicaid provisions establish the level of federal financial participation for each state, which is known as the state's "Federal Medicaid Assistance Percentage" ("FMAP" or "matching") rate. The FMAP rate varies for each participating state and is driven mainly by a state's per-capita income. (5) Although the federal statute sets a minimum FMAP rate of fifty percent for all medical service costs for Medicaid beneficiaries (and for almost all of the administrative costs), these state-specific matching rates can be as high as eighty-three percent of all medical services costs in the "poorest" states (as measured by per capita income). (6) In addition to these standard federal matching rates, certain provisions of Title XIX establish "enhanced" matching rates for certain services, certain covered populations, and for investments in major improvements in the administration of Medicaid. Congress has also enacted temporary enhanced matching rates for all Medicaid program costs during periods of economic downturn. (7) Most significantly, states that decide to expand Medicaid under the ACA expansion option are eligible for substantially enhanced matching funds, with the federal government reimbursing 100% of the medical costs incurred by states for the newly eligible expansion group until 2017, and gradually reducing this enhanced reimbursement rate to 90% by 2020. (8) State differences in FMAP rates may influence Medicaid coverage decisions, as discussed in Part II.C, infra.


In June 2012, the Supreme Court decided NFIB v. Sebelius, holding that the enforcement mechanism for a state's non-compliance with the statute's mandate to cover all "low-income adults" (i.e., loss of its federal funding for its Medicaid program), was too coercive and therefore an impermissible exercise of the Spending Power. (9) The Secretary of the Department of Health and Human Services (HHS) was prohibited from withholding federal funds for the existing Medicaid programs of noncompliant states, effectively making the ACA Medicaid expansion provisions optional for states. (10) The decision is discussed further in Part II.B., infra.


The new Medicaid expansion option creates two dynamic areas for policy research. First, the option creates a need for certain research questions to be answered as states weigh the individual health, economic, financial, political, and operational impacts of expanding their Medicaid programs. This research need is likely to be ongoing, because states have the option to expand Medicaid at any time in the future, and a substantial proportion of states have decided not to expand their Medicaid programs at this time. Second, variation in states' decisions regarding the Medicaid expansion acts a "natural experiment," which may allow researchers to study the differential consequences between states that elect to expand coverage and state that do not so elect. By studying and describing the effects of these state policy decisions, we can better inform state policymakers who are still deliberating the choice and those who are deciding whether to continue with the "expansion option" once the federal matching rate declines to 90%.

This Article describes some of the fiscal considerations states may use in choosing to expand their Medicaid programs under the ACA, and outlines some of the key research questions whose answers would help states weigh their expansion options.



Amid a contentious national debate, Congress passed the ACA in March 2010. (11) One main goal of the legislation was to expand healthcare coverage to the nation's uninsured, totaling nearly 50 million people in 2010. (12) The ACA expanded coverage through various mechanisms: (1) improving access to the individual healthcare market; (2) reducing the cost of individual coverage by regulating community rating and risk pools, and establishing insurance Marketplaces or "Exchanges"; (3) requiring certain employers to offer health insurance to employees; and (4) expanding Medicaid. (13) Medicaid provided coverage for over 66 million individuals in 2010. (14) If fully adopted, the ACA's Medicaid expansion would increase the number of insured Americans by more than 10 million people by expanding eligibility standards to cover almost all low-income individuals instead of only certain statutorily defined "categories" of low-income individuals. (15)

1. Existing State Variation in Medicaid Coverage

Under Title XIX, federal and state roles in the administration of Medicaid are defined. This federal law stipulates both mandatory and optional terms and conditions for beneficiary eligibility, covered medical and rehabilitative services, reimbursement methodologies, upper payment limits, and minimum standards for all aspects of program administration; including, eligibility determination procedures, medical service utilization controls, state agency reporting and oversight functions, program integrity requirements, financial audits and limitations on the sources of program funding, collectively known as "Title XIX state plan requirements." (16) Federal reimbursements for a portion of the costs incurred by states in paying provider claims for services to beneficiaries and administering their respective Medicaid assistance programs are known as "federal financial participation. …

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