The collapse of the congressional Republican attempts to replace the Affordable Care Act have ensured that the broad expansion of Medicaid to low-income able-bodied adults is unlikely to be repealed. But nor have many additional states since leapt to expand their programs.

As currently structured, states have little freedom to target the enhanced matching funds associated with the expansion of Medicaid at the beneficiaries in greatest need of assistance. This has inflated the cost of the program’s expansion, eroded incentives for work, and deterred non-expansion states from extending funds to address the most acute unmet needs.

The ACA initially required states to expand Medicaid to cover all able-bodied qualified residents in households earning less than 138 percent of the federal poverty level. The 2012 NFIB v. Sebelius Supreme Court ruling made this expansion of Medicaid optional for states. But, under the Obama administration, the associated coverage requirements remained largely an all-or-nothing deal – and one which 19 states have still not chosen to adopt.

This may be about to change. The new administrator of the Centers for Medicare and Medicaid Services, Seema Verma, oversaw Indiana’s pioneering attempt to expand Medicaid with a waiver (making use of HSA-like accounts), and was appointed to facilitate similarly innovative approaches by other states.

Arkansas had also employed an unorthodox approach to expansion, using Medicaid funds to enroll individuals on the exchange, where newly-eligible beneficiaries between 100 and 138 percent of the poverty level would pay premiums of up to 2 percent of income. This year, it is seeking approval of a revised waiver, which would remove individuals earning 100 to 138 percent of the poverty level from Medicaid, leaving the federal government to bear the entirety of the cost of subsidizing their premiums on the exchange.

Yet, Medicaid waivers cannot be granted if they inflate federal spending, and so the state has sought to pair this reform with a requirement that would make premium assistance for individuals under the poverty level aged 19 to 49 conditional on work.

By covering most major medical expenses for individuals earning less than 138 percent of the poverty level, the ACA’s Medicaid expansion has created a substantial disincentive to work. In fact, an able-bodied childless adult earning the minimum wage in most states would stand to lose this generous coverage, because of excessive income, if they were to work 40 hours per week every week.

Such an individual would remain eligible for subsidies to offset the cost of purchasing a plan on the exchange, but would likely incur hundreds of dollars in premiums and other out-of-pocket costs. A widespread concern remains regarding the inequity of providing a more generous healthcare benefit to those able-bodied childless adults who lack employment and are making no effort to gain it.

As a result, several states have sought to make the eligibility of childless able-bodied adults for Medicaid contingent on work. For instance, Kentucky has proposed a requirement that individuals spend 5 hours per week working, volunteering, training, caregiving, or searching for a job to maintain eligibility for Medicaid after their first 4 months on the program. But such a loose work requirement is likely to generate little employment other than in its administration. It has also been suggested that Kentucky has a strategy of cutting costs by putting paperwork between individuals and care.

A better approach is that proposed by Wisconsin, which seeks to limit able-bodied adults without dependents to 4 years’ receipt of Medicaid. This would ensure that Medicaid could serve as a generous safety-net of medical care, available to able-bodied adults temporarily unemployed, without creating a permanent disincentive to work. It would enable Medicaid to sustain the highest degree of generosity for the disabled, elderly, and pregnant women; leaving the exchange as a more appropriate method of subsidizing coverage for the working poor.

As Wisconsin’s proposal does not employ enhanced matching funds provided by the ACA, it is unlikely to be embraced by all states. But allowing states to claim enhanced matching funds for partial expansions of their Medicaid programs might make it easier for non-expansion states to extend care to those with the most acute needs. It might also stand a chance of getting support from both sides of the partisan divide.

Chris Pope is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Manhattan Institute.

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Should states be allowed to semi-expand Medicaid? – Washington Examiner