A Medicaid Expansion That Flew Under the Radar

Despite the fact that North Carolina has rejected expanding Medicaid to some citizens — fewer than 500,000 — the state has not rejected the federal health law’s Medicaid expansion in its entirety. North Carolina has, in fact, expanded its broken entitlement program.

Under Obamacare, states have the option of extending Medicaid eligibility to childless adults earning incomes less than 138 percent of the federal poverty level. With the initial passage of the law March 23, 2010, this provision was mandatory.

If states failed to comply, the feds would take away existing Medicaid funding, resulting in significant state revenue losses averaging more than 10 percent. However, in 2012, the Supreme Court ruled in NFIB v. Sebelius that the requirement was coercive.

What remains largely ignored, however, is that the Supreme Court did not limit its ruling on Medicaid expansion to childless adults. Rather, the ruling implies that other Medicaid expansionary provisions under the Affordable Care Act remain optional as well.

Nonetheless, U.S. Health and Human Services Secretary Kathleen Sebelius persistently threatens to take federal dollars from states that fail to implement other expansion provisions.

A recent John Locke Foundation Health Care Update addressed some of North Carolina’s budget items that amount to a hefty Medicaid spending increase. The recent state budget conference report confirms that some appropriated funds within the Division of Medical Assistance relate to requirements under Obamacare’s vision of achieving universal coverage by expanding the welfare state.

For example, Obamacare now requires children age 6-18 who live in households earning up to 138 percent of the poverty level to be covered under Medicaid, but this element of expansion falls under the Supreme Court’s final “optional rule.” Until now, North Carolina’s Medicaid program has covered children in households earning up to 100 percent of the poverty level.

The state’s health and human services budget notes that 51,000 children living in homes earning less than 133 percent of the poverty level who are enrolled in Health Choice, the state’s Children’s Health Insurance Program, will be transferred to Medicaid. This shift, the report explains, is “[i]n accordance with the Affordable Care Act, which requires they be covered under Medicaid instead of Health Choice.” Costs will also increase “as a result of these recipients being eligible for broader benefits under Medicaid than they had when covered under Health Choice.”

Keep in mind that Health Choice is North Carolina’s State Children’s Health Insurance Program, but this government-sponsored program is not an entitlement program. It is established and funded under the Social Security Act, covering children in families up to 200 percent of the poverty level who earn too much income or have too much in assets to qualify for full Medicaid benefits but who cannot afford private health insurance. Beneficiaries pay enrollment fees and co-pays for prescription drugs and medical services conditional on annual household income.

One may argue that this “shift” does not expand Medicaid, since these children will receive benefits either from Medicaid or Health Choice. This may be true, but Health Choice has an enrollment cap. Therefore, transferring recipients onto Medicaid not only will increase North Carolina’s original Medicaid eligibility standards by 38 percent, but also will create more room for other children to gain coverage through Health Choice.

Yet again, Obamacare creates perverse incentives, since more families will be able to gain government aid (dependent on taxpayers) rather than releasing themselves from the state and seeking private coverage that gives better-quality care.

Aside from this case, North Carolina has taken the smart steps of refusing to implement a state-run health exchange or the Medicaid expansion provision for childless adults, and is taking incremental steps to reform our existing Medicaid program through competitive contracting among multiple managed care organizations. Although this biennium’s budget comprises fiscally sound qualities, the HHS portion of the budget still could be reined in further.

Katherine Restrepo is health and human services policy analyst for the John Locke Foundation.