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When the U.S. Supreme Court upheld the bulk of the Affordable Care Act in June of 2012, the decision was widely viewed as a victory for President Obama and a validation of his signature domestic-policy achievement. The Court’s declaration that the federal government couldn’t force states to participate in the law’s Medicaid expansion was treated almost as an afterthought. But now, as Obamacare begins to take effect, the ramifications of the Medicaid ruling are at last becoming clear.

Under the Affordable Care Act, Americans making between 100 and 400 percent of the federal poverty level are eligible to receive subsidized health insurance purchased from private insurers on government-run exchanges. The law also expanded Medicaid to cover everyone making less than that. Before the ACA, states received matching funds from the federal government to provide Medicaid benefits to certain vulnerable populations, notably low-income families and pregnant women. Although states could opt to extend coverage to other populations with additional federal aid, few did. For instance, only nine offered Medicaid benefits to adults living in poverty without dependent children. In tandem with the subsidized exchanges, Obamacare’s new Medicaid standards — which required that states cover their entire nonelderly low-income population in order to be eligible for funding — were intended to guarantee some form of coverage to all those below the 400 percent line. But the Supreme Court ruled that this change caused “a shift in kind, not merely degree” in how Medicaid was administered and represented an unconstitutional federal mandate. The Court found that while the federal government could offer states the funds to expand Medicaid, it could not force them to accept changes to the program. In the wake of the ruling, nineteen Republican-led states chose to refuse their share of the funds, creating what is now being called the coverage gap: an estimated 5 million American adults earn too little to qualify for federal exchange subsidies but too much to qualify for Medicaid.

In most respects, the Republican revolt against the Affordable Care Act, for all its sound and fury, has failed to impede the law. Exclusion of patients with preexisting conditions is now a thing of the past, curbs have been placed on insurance-industry profiteering, and for the first time millions of low-income Americans can afford to seek treatment for chronic illnesses such as cancer and diabetes. But the calculated refusal to accept tens of billions of dollars in federal money for the expansion of Medicaid has proved an effective, if partial, obstacle to the law’s successful implementation.

Last fall, as the push to enroll new consumers began, I traveled to Texas, home to 22 percent of Americans stuck in the coverage gap, to see how people were responding to the law as it began to take effect. The talk on the radio in Austin was all Ted Cruz: the federal-government shutdown, engineered by the senator in an effort to defund the ACA, was in full swing. Sprinkled in with news of the shutdown were reports (and punch lines) on the beleaguered website.

It was a lovely morning when I pulled into a mostly deserted parking lot outside Austin’s Highland Mall — which, I discovered, isn’t exactly a mall anymore: Austin Community College bought the property in 2011 with plans to convert it to an extension of its campus. Just a few shops remained open, among them outposts of the indefatigable Hot Topic and Aéropostale clothing chains. Upstairs, across from the neon-accented 1980s-style food court, was my destination: the spacious, industrial-carpeted offices of Foundation Communities, an affordable-housing nonprofit that was teaching people about the insurance options made available under the ACA.

Sam Richardson, a thirty-three-year-old assistant professor at UT Austin’s LBJ School of Public Policy, was at a computer in one of the office’s gray fabric-walled cubicles when I arrived. Richardson had trained as an ACA application counselor along with a colleague, David Warner, and a group of their graduate students. They were helping local residents understand and apply for new insurance while also gathering data to contribute to a thirty-three-state field study on the ACA. Richardson’s first prospective enrollee that day was a sixty-year-old woman named Sarah, a property manager at a nearby nonprofit. Sarah had been getting treatment for her diabetes and high blood pressure at a local community health center, but owing to some bureaucratic change that nobody had been able to adequately explain, her costs had shot up in recent months. She hoped the ACA might offer a better alternative.

Like twenty-five other states, Texas has declined to create its own health-care exchange, and because of’s myriad technical problems there was little hope of getting on the federal marketplace’s site. Richardson used the Kaiser Family Foundation’s subsidy calculator to determine Sarah’s options. Her salary was $522 a month and her husband, who was already covered by Medicare, received $758 a month in Social Security benefits; their annual household income was $15,360. In order to qualify for premium tax subsidies, Sarah would need to quit smoking and bring her household income up to $15,510. If Sarah and her husband could scare up an additional $150, she would have to pay only twenty-seven dollars a month for coverage; if they couldn’t, the price of her insurance would jump to $547 a month — nearly half the pair’s income.

Some 6 million Texans — a quarter of the state’s residents — were uninsured before the ACA’s passage, yet Texas governor Rick Perry was among the law’s most vociferous opponents. Had Texas accepted the Medicaid funds — the cost of which would have been borne entirely by the federal government for three years — Sarah and about 1 million other low-income Texans would automatically have received full medical coverage under Medicaid. As matters stand, the vast majority of these people will go without any insurance unless they can find some way to pay for it out of pocket, while much of the rest of the country’s working poor has had that burden removed.

Perry is almost entirely responsible for his state’s refusal of Medicaid funds. John Zerwas, a Republican state representative (and physician), proposed legislation to accept a form of Medicaid expansion last March and found the votes and the bipartisan political will to pass it. He told the Texas Observer that the bill was “creating a way for us to provide insurance to a group of people that there is no provision for.” But when Perry threatened a veto, the effort was dropped. The sizable backlash to the law in Texas has let Perry hold these legislators at bay for now, but as the dire consequences and the absurdity of refusing the Medicaid money become clearer to legislators and their constituents alike, it seems increasingly likely that Texas will have to find a way to accept the money.

For Republicans, the political consequences of denying benefits to low-income Americans may not be great, even when it costs their states billions of dollars. But the refusal of Medicaid-expansion funds is producing unanticipated effects among hospitals and insurers, and these constituents are proving more difficult to ignore. The Affordable Care Act was written with the assumption that every state would participate in the new Medicaid system, and therefore that most hospital patients would have some kind of health insurance; federal payments for the care of uninsured emergency-room patients were reduced as a result. In the wake of the Supreme Court ruling, hospitals will still be obligated to treat the many ER patients who can’t pay, but they’ll be doing so with considerably less in subsidy money. By 2016, Texas hospitals alone can expect a $1.2 billion cut in annual payments. Republican leaders in Georgia and Mississippi, where hospitals are caught in a similar squeeze, are considering bailing them out with state funds rather than simply accepting the Medicaid money — a far more sustainable solution.

In Arkansas, the state’s Democratic governor, Mike Beebe, foresaw the potential damage of refusing the money definitively, and so struck a fragile compromise with the Republican-controlled legislature to expand Medicaid last year. The deal, known as the “private option,” provides for the use of expansion money to purchase private insurance plans for state residents who have fallen into the coverage gap. This solution is significantly more costly than expanding Medicaid outright — 50 percent more, according to the Congressional Budget Office — but it is more politically palatable to those Republicans who fear electoral challenges from the right. Additionally, it provides a windfall to the insurance industry, which has unsurprisingly been a major proponent of the idea. Ohio passed a similar proposal last October. The Centers for Medicare and Medicaid Services was compelled to approve the state plans, seeing no other way to guarantee insurance to those affected by the coverage gap. Now, New Hampshire, Pennsylvania, and Utah are also looking into backdoor solutions like the one adopted by Arkansas.

After the Arkansas compromise law passed last April, some legislators backtracked and threatened to scupper a key funding vote. By then more than 100,000 low-income Arkansans had enrolled in the new coverage. “We spent a lot of time answering questions and listening to any other alternatives that were out there,” said Arkansas House speaker Davy Carter, who supported the plan. “To me this whole story, starting back last year, is about political courage.”

The resistant Republicans echo governors and legislators who have turned down the money elsewhere, claiming that to accept the Medicaid-expansion funds now could put them on the hook for the program later. But the federal government has always covered at least 50 percent of a state’s Medicaid expenses, and in poorer states it pays up to 83 percent. Now it has committed to funding 100 percent of the coverage for individuals who meet the expanded eligibility requirements; this commitment will last three years, after which it will taper to a minimum of 90 percent by 2020. States will never pay more than 10 percent unless the law is altered or repealed — an increasingly unlikely eventuality. Some politicians publicly worried that accepting the funds would increase enrollment among people who qualified under the pre-ACA standards, which would be paid for by the traditional and less generous split, but that is no reason to keep benefits from a whole swath of the population. Furthermore, the argument that states will be forced to pay if the government can’t afford to maintain Medicaid outlays years into the future is just a fib. Republicans in Arkansas have already proved that they are perfectly free and willing to take health insurance away from their poor residents if and when they please. In the meantime, there is no real downside to taking immediate federal assistance for people who need it. In Texas, for example, a study by the Commonwealth Fund last year found that rather than saving money, the state’s rejection of federal help will cost it as much as $9.2 billion a year by 2022.

While there is little doubt that Arkansas Republicans who supported even the private version of Medicaid expansion will be attacked by their Tea Party challengers in the coming months, the political calculus is no longer as simple as it was in 2012. Sowing fear and misunderstanding about benefits no one yet has is one thing; taking away benefits that people are already using is quite another. In March of this year, the Republicans relented and Beebe approved another year of the private option.

When Medicare and Medicaid became law, in 1965, President Lyndon Johnson faced the implacable hostility of the insurance industry and the American Medical Association, both of which declared the programs to be “the beginning of socialized medicine.” “Hospitals are faced by an unbearable burden,” warned the Los Angeles Times, with a gloom common to media reports at the time. “The old people are waiting to flood the facilities in great numbers.”

In July of 1967, to mark the first anniversary of Medicare, a woman named Vesta Johnson was interviewed in the same paper. She’d undergone eye surgery that cost $4,000, all but $500 of which had been reimbursed by Medicare. The seventy-nine-year-old retired schoolteacher admitted to being shocked at the amount of help she’d received from Medicare, and said it had preserved her pension. “I nearly did not sign up for it because it seemed too good to be true,” she said. “But after some urging I did, and I’m forever grateful that I did.”

By then, the opposition had completely reversed course. “The Medicare program is operating very smoothly,” said A. B. Halverson, a vice president of the Occidental Life Insurance Company of California, adding that “the benefits under Medicare are quite good.” The Los Angeles Times couldn’t believe its ears:

These comments were not made by a White House spokesman but by a representative of a business faction that for twenty years fought bitterly against even the suggestion of a government-subsidized national insurance plan — the insurance industry.

Somehow it had turned out that the old people weren’t so anxious to flood the hospitals after all.

The fact that state governments today are willing to take any additional expansion funding at all, even if by backdoor means, suggests that the ACA’s Medicaid provisions will eventually win acceptance nationwide. The success of Arkansas and Ohio in arriving at a bipartisan solution bodes well. But in Arkansas, getting the private option passed included an agreement to ban funding for the kinds of outreach and education efforts that have thus far been crucial to ensuring high enrollment. Legislators went as far as to cut off state funding for the work of trained guides like the ones who helped Sarah in Austin.

According to Sam Richardson, the Texas Legislature might consider Medicaid expansion again now that primary season has passed. “I think the votes will be there next legislative session,” he told me. “It will come down to whether the next governor threatens to veto.” Wendy Davis, the Democratic candidate running to replace Rick Perry, has already made Medicaid expansion a centerpiece of her campaign. While the politics of her opponent, Greg Abbott, are somewhere to the right of Perry’s, it remains to be seen whether he can be pressured into accepting a compromise. Medicaid expansion and the Affordable Care Act are bound to go the way of Medicare eventually. It’s only a matter of how many people like Sarah must continue to suffer before Texas catches on.

is a journalist and critic based in Los Angeles

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May 2014

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