How to work around Medicaid opt-outs

For all his training as an economist, Paul Krugman eschewed complex equations or phrases when he recently described those who have been campaigning to eliminate healthcare reform. He simply called them cruel.

Krugman is completely correct, and that cruelty could financially impact hundreds of hospitals throughout the country.

Just days after the U.S. Supreme Court upheld virtually all of the Patient Protection and Affordable Care Act, a slew of conservative governors decided to exploit the one sliver that was not upheld: The requirement states must expand their Medicaid programs or lose their funding entirely.

Freed of that threat, Gov. Rick Perry of Texas quickly declared that not only would the Lone Star state not participate in the health insurance exchanges, it also would refuse to expand Medicaid coverage. Gov. Bobby Jindal of Louisiana is likely to follow. That's despite the fact that the federal government would pay for all of the expansion between 2014 and 2017, and 90 percent of costs beyond that period.

A quarter of Texas' residents are uninsured, the highest rate in the nation. Fewer than half of Louisiana's employers offer coverage, and the state has one of the nation's highest poverty rates.

And the states' burden of expanding the Medicaid program under ACA is negligible. According to the Center on Budget and Policy Priorities, it will costs the states $73 billion to expand Medicaid between now and 2022. That's an average of $146 million per state per year--a rounding error these days.

In other words, not expanding it under ACA would seem, for lack of a better word, cruel.

Of course, neither Perry nor Jindal conjure up statesman-like images. The former couldn't remember which government agencies he'd eliminate during a nationally televised presidential debate earlier this year. The latter has never lived down comparisons to "30 Rock's" Kenneth the Page character for his simpering response to President Barack Obama's first State of the Union address in 2009.

Nevertheless, both wield enormous power. If they can keep Medicaid from growing in their states, it will add to the already terrible financial pressure on hospitals there. Along with still having to treat tons of patients without any coverage, virtually all of these facilities also will lose their Disproportionate Share Program (DSH) funding as part of ACA.

Meanwhile, millions of their residents will continue to have their care disrupted because there will be no mechanism in place to pay for it.

Yet, despite the loud hand-wringing already beginning on this problem, it can be solved relatively quickly. Most states opting out of Medicaid also will opt out of the exchanges. They would then be constructed and operated by the federal government.

Those federally-operated exchanges could then receive the dollars originally intended to cover new Medicaid recipients and offer them up as a direct subsidy to any resident of those states eligible under income guidelines who applies for coverage. The applicants could then use that subsidy to enroll in a commercial health plan. Many are now providing coverage for Medicaid enrollees already, so it won't be a shock to their equilibrium to take on such new customers.

Congress would probably have to tweak the ACA to make this accommodation, although Obama might be able to achieve it with an executive order.

Hospitals may need to push this along with aggressive lobbying efforts. It may not be pretty, but at least it's not cruel. - Ron (@FierceHealth)