North Carolina’s decision not to expand Medicaid coverage in light of NFID v. Sebelius

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By: Brett Lewis, Guest Contributor May 12, 2014

 Editor’s Note: The Campbell Law Observer has partnered with Judge Paul C. Ridgeway, Resident Superior Court Judge of the 10th Judicial District, to provide students from his Law and Public Policy seminar the opportunity to have their research papers published with the CLO. The following article is one of many guest contributions from Campbell Law students to be published over the summer.

In March 2013, North Carolina Governor Pat McCrory signed legislation that denied the extension of the state’s Medicaid program to over 500,000 low-income people. This decision was made possible by a landmark holding by the Supreme Court of the United States in National Federation of Independent Business v. Sebelius. This was not the high-profile holding that upheld the Affordable Care Act’s (ACA) individual mandate, but rather the one that said that the ability of the United States Secretary of Health and Human Services to withhold all federal Medicaid money from states that do not expand their Medicaid coverage to low-income individuals was unconstitutional.

The Court’s opinion, authored by Chief Justice John Roberts, rejected the Government’s argument that the expansion of Medicaid, which extended coverage to people with income below 133 percent of the poverty level, was analogous to past modifications to Medicaid. Instead, the Court found that the coercive power the ACA gave to the Secretary of HHS was beyond the federal government’s powers under the Spending Clause.

 States were essentially left with two choices: create healthcare exchanges and extend Medicaid with nearly all of the funding provided by the federal government or refuse the additional funds and potentially leave millions of their citizens uninsured.

Before the holding in Sebelius, the Secretary of HHS would have had the authority to withhold all Medicaid money from States that failed to conform to the provisions of the ACA. These provisions include setting up exchanges and providing certain sums of money for the administration of Medicaid. ¹ While Congress may offer funds to expand healthcare coverage in the states, allowing the Secretary of HHS to effectively penalize states that choose not to participate in the program by withholding Medicaid money was ruled unconstitutional. ²

The Sebelius decision was profound as it gave states a true choice on whether or not to accept an expansion of their Medicaid systems. States were essentially left with two choices: create healthcare exchanges and extend Medicaid with nearly all of the funding provided by the federal government or refuse the additional funds and potentially leave millions of their citizens uninsured.

Accordingly, discrepancies now exist between the nation’s low-income citizens based entirely on the state in which they live, depending perhaps more than ever on the decisions of their state legislatures. So far twenty-six states and the District of Columbia have expanded or are in the process of expanding coverage, five states are debating expanding coverage in their legislatures, and nineteen have either explicitly rejected the Medicaid expansion or are not moving forward with it at this time.

 In the absence of Sebelius, North Carolina most likely would have accepted the Medicaid expansion funding.

In exploring why the North Carolina General Assembly and the Governor decided not to expand Medicaid coverage in the state, first the effect of the loss of the power of the Secretary of HHS to withhold all Medicaid payments to non-ACA conforming states should to be considered. Examining what the same decision would have looked like had the Sebelius decision not voided the power to withhold Medicaid funds shows just how influential the case was on state policy. North Carolina still could have rejected the federal government Medicaid expansion, but it would have come at an incredible cost as the state’s current Medicaid system accounts for $13-billion annually.

In the absence of Sebelius, North Carolina most likely would have accepted the Medicaid expansion funding. Although there would have been some debate and disgruntlement among a large constituency of GOP legislators, Governor McCrory was not as brazenly against Medicaid expansion and would likely have allowed it to go forward. However, it is not beyond the scope of reality to imagine a scenario where the State rejects setting up exchanges and expansion of Medicaid, notwithstanding the threat of losing its entire Medicaid package. In that situation, the State would have challenged the Secretary of HHS to see whether she would actually pull all Medicaid money from North Carolina’s economy, healthcare system, and the people who desperately rely on those funds.

 GOP leaders have articulated three reasons why North Carolina has decided not to expand Medicaid.

Since Sebelius, GOP leaders have articulated three reasons why North Carolina has decided not to expand Medicaid. First, many of the legislators are against President Barack Obama’s chief legislative achievement for political and philosophical reasons. Second, some GOP leaders cited a need to reform the state’s current Medicaid system before expanding the system. In the General Assembly’s short session this summer, legislators will be considering a bill that would trim the state’s current $13-billion Medicaid system by 3 percent. And third, Republican leadership has expressed a concern that the Federal government will not provide adequate funds to the state in the future, leaving it on the hook for a deficiency.

Indeed, three incumbent Republicans running for reelection in November have echoed similar statements over the last two months. ³  Rep. George Cleveland (Onslow-R) noted that the state’s Medicaid system already runs a $350-million to $450-million deficit each year. Rep. Philip Shepard (Onslow-R) was worried about the federal government pulling the plug on funding the Medicaid expansion saying, “You open a can of worms when you start taking federal money.” Rep. Leo Daughtry (Johnston-R) echoed that reform needed to happen before the legislature can consider Medicaid expansion. “Medicaid is costing us so much, and it’s grown so rapidly, that I really think we ought to be providing as good of service as we can provide. But I don’t think we should expand our service,” said Daughtry.

Notwithstanding the policy reasons articulated by North Carolina Republicans, there has not been uniform GOP opposition to the expansion of Medicaid nationwide. Other states with Republican governors have accepted the Medicaid extension, despite their original opposition to Congress’s passage of the ACA. As of April 10, 2014, the state of Ohio, whose Republican governor John Kasich pushed for extension of the state’s Medicaid program, had enrolled more than 106,000 lower-income citizens into Medicaid under the expansion. Other states with Republican governors have come out in support or at least a desire to explore Medicaid expansion and some have persuaded bipartisan majorities in their legislatures to go along, such as in Arizona, Michigan, North Dakota, Pennsylvania, Utah and Ohio.

It is likely that the fiscal realities of the benefits of Medicaid expansion and political pressure from the general public, medical professionals, and hospitals to accept it will gradually cause states in the Deep South to reconsider their positions.

Democrats and advocates for expanding Medicaid fought the measure that denied expansion of Medicaid in North Carolina, emphasizing that 1. 5 million people in the state do not have health insurance. “In the short run, it means hundreds of thousands of North Carolinians will remain uninsured, and they are not going to get adequate medical care,” Jonathan Oberland, a health policy professor at the UNC School of Medicine, said to the News & Observer. “Research shows it makes significant health difference for people who get coverage.”

It is likely that the fiscal realities of the benefits of Medicaid expansion and political pressure from the general public, medical professionals, and hospitals to accept it will gradually cause states in the Deep South to reconsider their positions. In the meantime, the absence of a punitive financial consequence to the State as a result of the Republican-controlled state government’s rejection of Medicaid softens the blowback the current administration and legislators will feel from their constituents. Since the GOP control both chambers of the General Assembly and the Governor’s Mansion, it is unlikely that anything will be done to expand Medicaid in the summer’s short session, or in the near future barring a drastic electoral shift.

While the Court’s holding in Sebelius that the Secretary of Health and Human Services’s power to withhold all Medicaid funds from states that choose not to participate in Medicaid expansion is unconstitutional may be viewed in many lights – such as one that restrains the federal government’s spending power and enforces state sovereignty, inter alia – it indisputably was a major policy-making decision handed down by the judiciary that essentially transferred a piece of policy from Congress to the respective state legislatures. The consequences of such a decision, with respect to the Spending Clause and healthcare policy, and the wisdom of individual legislatures, is still to be seen.

Brett Lewis is a 2014 graduate of Campbell Law School. Brett can be reached via email at ba*********@em***.edu.