South Carolina Resists Medicaid Expansion Mandate

South Carolina Resists Medicaid Expansion Mandate
December 6, 2012

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)

South Carolina Gov. Nikki Haley has opted not to expand the state’s Medicaid program, despite the mandate to do so under President Obama’s health care law.

Haley and other South Carolina officials had expressed budget concerns about the program even without the expansion, and they say they are the federal government could fulfill its end of the bargain in meeting the costs of an expanded system.

After the Supreme Court ruled states had the constitutional authority to reject the Obama administration’s Medicaid expansion without losing access to previously established funding, Haley’s decision followed quickly, according to Jeff Stensland, spokesman for the South Carolina Department of Health and Human Services (SCDHHS).

“The governor was pretty clear really early on that this was not a route that South Carolina wanted to pursue,” Stensland said.

An analysis by the Milliman actuarial group found the Medicaid expansion would cost South Carolina between $1.6 to $2.4 billion over the next decade depending on participation rates, Stensland said.

“That’s a significant cost,” Stensland said. “The state currently spends about $1 billion [per year] in general funds on Medicaid, with about $6 billion in total spending, including federal.”

Providers Push for Expansion

As in other states, South Carolina’s health care providers are expected to bring significant pressure on the Haley administration to change their minds, said former SCDHHS Director Robert Kerr.

“Providers, of course, want Medicaid programs to expand. It’s 100 percent federal money into the out years, when it drops to 90 percent funding,” for those newly eligible, Kerr said. “So the Medicaid providers are generally going to be enthused about Medicaid expansion.”

But the costs of such an expansion, especially in the long term, make the federal funding less tempting, Kerr says.

“The administration and a large part of the legislature here are very wary of expanding Medicaid. In fact, Nikki Haley has made it very clear she doesn’t intend to expand Medicaid,” Kerr said. “Some of them will say [it’s] because Medicaid is a broken system, and they don’t want to put people in a broken system. But the bottom line is they’re fearful of the federal deficit, and the ability of the feds to maintain their commitment on that program moving forward.”

Kerr says South Carolina political leaders are concerned the Medicaid cost growth will crowd out other budget items and compel state tax increases in future years.

“Most of the states, including South Carolina, have burgeoning Medicaid budgets,” said Kerr. “Everyone’s cautious about making that budget bigger than it currently is. The fear of a lot of Republicans in the state is that ten years down the road or even [in] five years, are you going to be able to sustain that level?”

‘Woodwork Effect’ Challenge

Stensland says the level of Medicaid funding is only set to increase, and the so-called “woodwork effect” could drive even more people into the system.

“We know with just our natural growth of the Medicaid program, what we call our maintenance of effort, that’s going to suck up a lot of new dollars that will be available to the state. That’s not even counting what the education system is going to need, what law enforcement is going to need,” said Stensland. “Even without doing the expansion, we’re going to have a bump in enrollment, because of what some people call the ‘woodwork effect’—people who are currently eligible but not enrolled.”

Kerr, however, doesn’t think the woodwork effect will amount to much.

“You’ll obviously get a little effect because of increased exposure, but I don’t think the penalty is going to be a driver, for two reasons: if you’re below the filing threshold for taxes you don’t pay it, and even if they’re above it, I don’t think a $695 penalty is going to frighten someone into getting on Medicaid,” Kerr said.

But Stensland says whatever the burden, the system isn’t prepared to handle the new enrollees.

“Giving people a Medicaid card doesn’t mean they’re going to be any healthier at the end of the day,” Stensland said. “We’re working on improving the system right now, to gear it more toward health outcomes, but until that happens it doesn’t make sense to dump more people into the current system.”

Legislature Will Take It Up

Jamie Murguia, research director for the South Carolina Policy Council, says the legislature will have to tackle the Medicaid expansion in 2013.

“The governor doesn’t have too much control over the budget situation in South Carolina. She puts out an Executive Budget, but the Executive Budget doesn’t really have any standing. The House and Senate each create and pass a budget, and then they typically reconcile the two,” Murguia explained.

Murguia notes Haley lacks the line-item veto power some other governors have.

“The governor sets priorities, but that doesn’t really have any effect on what happens,” Murguia said. “Most of her authority is on the back end, with the veto process, but there’s a general consensus, year after year, that not many of the governor’s vetoes are upheld.”

As for how South Carolina would come up with the money to fund the expansion if it had to, Murguia said, “I’m really not sure where that would come from.”

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)
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