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AHCCCS expansion on the ropes after federal matching funds decision

AHCCCS expansion on the ropes after federal matching funds decisionPlans to restore deep cuts made to Arizona’s Medicaid program are on life support after federal health care officials dashed the state’s hopes of getting extra financial help.

But some, including Gov. Jan Brewer, haven’t given up hope yet.

The U.S. Centers for Medicare and Medicaid Services announced Dec. 10 that states won’t get extra federal money to expand their Medicaid programs unless they implement the full expansion enshrined in the Affordable Care Act. The health care law dramatically increases the federal matching funds available to states that expand Medicaid coverage to include people earning up to 133 percent of the federal poverty level.

For Arizona, where many had hoped to get the enhanced federal matching funds to restore Arizona Health Care Cost Containment System coverage to 100 percent of the federal poverty level, the federal announcement was a gut check.

“I think this was our worst nightmare,” said Emily Jenkins, president and CEO of the Arizona Council of Human Service Providers. “I can’t be optimistic at this point.”

Proposition 204, a 2000 ballot measure, expanded AHCCCS coverage to 100 percent of the federal poverty and extended coverage to include childless adults. But Brewer and the Legislature froze enrollment for childless adults during Arizona’s budget crisis, and more than 100,000 people lost Medicaid coverage as a result.

The federal government provides a two-to-one match to states for their Medicaid programs, supplying 66 percent of the funding for AHCCCS. The enhanced match available under the Affordable Care Act provides 85 percent of the funding.

The cost difference for Arizona is staggering. With the enhanced match, Arizona could have restored the Prop. 204 coverage for $135 million in fiscal year 2015. With the traditional two-to-one match, however, the cost skyrockets to about $478 million, according to the Joint Legislative Budget Committee.

Some say the state’s best option is now to embrace the full expansion of Medicaid under the Affordable Care Act, which would provide coverage to anyone earning up to 133 percent of the federal poverty level. According to JLBC, the full expansion carries the same $135 million price tag in 2015 because the federal government would initially pay the full cost of all Medicaid patients who earn between 101 percent and 133 percent of the federal poverty level.

But many lawmakers are concerned about the long-term costs of the full expansion. After 2016, the federal match for people who are above the federal poverty level drops to 90 percent, and no one is sure how much the state will have to pay after that. In addition, some worry that the deficit-wracked federal government won’t be able to afford the 90 percent match in the long run either.

The fight to restore AHCCCS coverage in 2013 would have been contentious no matter what. The dark days of fiscal catastrophe are behind Arizona, but revenues are still somewhat flat, and there are a lot of interests competing for whatever extra money the state has, with many lawmakers eager to restore cuts to K-12 education.

Incoming Senate President Andy Biggs, R-Gilbert, said the Centers for Medicare and Medicaid Services decision on enhanced matching funds is likely a death knell for Prop. 204 restoration.

“It does make it harder,” Biggs said. “It seems to me that we have a potential huge problem if we do this.”

With the expiration of a temporary 1-cent sales tax increase coming by the middle of next year, JLBC estimates that Arizona will actually bring in less revenue for 2014 than it will for the current fiscal year. JLBC projected that the state will have $300 million less to spend in fiscal year 2014.

If the state only had to spend $135 million to restore the Prop. 204 coverage with enhanced matching funds, Biggs said that might leave some extra money to boost K-12 spending. But the $478 million price tag that Arizona now faces doesn’t leave policymakers any room to maneuver.

“If you spend $200 (million) to $300 million (more) over here on the childless adults, all of a sudden, where do you find that money to spend on K-12 education?” Biggs said. “We’re on an unsustainable path economically and for us to accelerate the unsustainability of that path doesn’t really seem the wisest move.”

Rep. John Kavanagh, chairman of the House Appropriations Committee, agreed, saying many lawmakers were cool to the idea of expanding AHCCCS coverage to begin with.

“It’s not going to happen,” said Kavanagh, R-Fountain Hills.

Sen. Rick Murphy, R-Peoria, said AHCCCS expansion is essentially unaffordable now, and said the feds’ decision on matching funds likely ends any chance that it will happen.

“Even if all of us really, really want to do it tomorrow, which isn’t necessarily the case, we simply don’t have $380 million to implement the first year of it, much less ongoing years,” Murphy said.

Other Republican lawmakers echoed those sentiments. Rep. Kate Brophy McGee, R-Phoenix, said hospitals will “bear the brunt” if AHCCCS coverage isn’t restored because more patients end up in uncompensated care. The hospitals are pushing lawmakers on the issue, she said.

“The question still is, how in the heck will we pay for it (Prop 204. restoration)?” Brophy McGee said.

Some lawmakers are reserving their judgment until they see what Brewer decides. The governor has been mum about what she’ll do with AHCCCS coverage and said she would announce her decision as part of her fiscal year 2014 budget proposal in January.

Rep. Debbie Lesko, R-Glendale, said Brewer’s budget proposal will be the starting point.

“We as legislators have to look at the total budget picture. We have to fund education. We have to fund CPS. We have to fund Medicaid. So we don’t know yet what we can afford, and if we have to spend more in one area, we have to spend less in another area, and we have competing groups of people that want to actually increase funding. So it’s something I don’t think we fully have an answer to until the governor gives her budget proposal,” Lesko said.

Sen. Don Shooter, who chairs the Senate Appropriations Committee, said Brewer’s proposal will be a factor in his decision. For now, the Yuma Republican said he’s still trying to gather information.

“I’m always skeptical of expanding any program. I have that natural bias or that natural worldview. So I just think in general it’s a bad idea to expand the role of government,” Shooter said. “Having said that, we’ve got to do what’s prudent. And I’m still trying to determine what that might be.”

After the announcement by U.S. Health and Human Services Secretary Kathleen Sebelius on Medicaid funding, gubernatorial spokesman Matthew Benson said the lack of enhanced matching funds would “weigh heavily” on Brewer’s decision.

But days later, the governor indicated that she’s still hoping to find a way to restore AHCCCS coverage for childless adults. She also wants to continue seeking additional money from the federal government.

“I’m going to continue working to see if we can’t pursue something that is favorable, more favorable to Arizona,” Brewer said. “I’m not going to give up.”

Benson said the governor is considering a number of options, “but nothing I can discuss at this point.” He wouldn’t comment on whether Brewer is open to a provider tax or another new revenue source to fund AHCCCS coverage.

“If the federal government is not going to provide enhanced matching dollars for a partial expansion or restoration of Medicaid, we’ll have to potentially look at other options and get creative as we can to see if there’s any other way to pursue this. The governor just wants to keep all of her options on the table going into a decision that she knows has significant ramifications,” Benson said.

Peter Wertheim, vice president for strategic communications at the Arizona Hospital and Healthcare Association, said his organization may be open to a provider tax, but isn’t ready to commit to anything.

“It’s a tricky solution but it’s certainly one we absolutely do not want to take off the table or discount. If that ultimately becomes the most viable direction to head, we’re certainly prepared to step up.

But right now I think we need to be careful not to lock ourselves into one approach just yet,” Wertheim said. “If we can find a way to help with the financing, certainly I think we’re capable of coming together with the business community and offering up some solutions.”

Senate Minority Leader Leah Landrum Taylor, D-Phoenix, hopes the state might still be able to get enhanced federal matching funds for the Prop. 204 restoration. Failure to increase Medicaid coverage will come at a heavy cost in terms of both money and lives, she said.

But Landrum Taylor said Arizona would be far better implementing the full expansion, emphasizing that it will now cost far less than simply restoring coverage for childless adults under Prop. 204.

“With that being the case, I’m hoping something can be done,” Landrum Taylor said. “We need to look at a plan to move in that direction so that we are able to get those enhanced funds.”

Landrum Taylor acknowledged that the state will probably need more revenue for either the restoration or the full expansion. She said lawmakers should consider eliminating tax credits and loopholes, a popular idea among legislative Democrats.

“There are ways. We have got to come up with ideas for how this can happen. And it’s a hard conversation. I know it’s hard,” Landrum Taylor said.

The unknown cost of full expansion is concerning to Republican lawmakers, many of whom are already wary of anything associated with President Barack Obama’s signature health care law.

House Speaker Andy Tobin called the federal decision on the enhanced matching rate a “blatant attempt” to force states like Arizona to implement the full expansion.

“With far too many unanswered questions regarding how the Affordable Care Act will be fully implemented, this will be imposed on us with no latitude to adapt our program to suit Arizona’s unique health care needs,” said Tobin, R-Paulden. “Aside from those concerns, Arizonans know that this federal government has not consistently upheld its budgetary commitments and we will be on the hook for any shortcomings.”

For states that implement the full expansion, the feds will pay the full cost of coverage for people earning 101 percent to 133 percent of the federal poverty level through 2016. But after 2016, the federal match for that population drops to 90 percent.

Rep. Heather Carter, chair of the House Health Committee, said the state needs to look at the long-term costs of full expansion.

“Based upon the information we have from the federal government now, we need to sit down at the table and look at short-term opportunities versus long-term opportunities versus cost. We want to make sure that we’re not putting the state in a financial situation two or three years down the line that is unsustainable just to try to get short- term gains,” said Carter, R-Phoenix.

Brewer too said the cost issue is a problem.

“I don’t know if we have the money. And, of course, I have to work along with the Legislature. So it’s going to be us all working together to do what’s right for Arizona. And I will work hard and diligent in that direction,” Brewer said.

Some Republicans don’t want to take any more federal money for Medicaid, regardless of how high the match is, because they don’t want to exacerbate the enormous federal debt. Sen. Al Melvin, R- SaddleBrooke, said the country’s debt, much of which is borrowed from China, will be a severe problem in the future. He referred to the debt as “generational theft.”

“It’s our patriotic duty to be looking at this national debt of $16 trillion and to realize that 40 cents on the federal dollar is borrowed. So before we insist on or try to get more federal money, we need to be aware of it,” Melvin said. “There will be a day of reckoning.”

Kavanagh said he doubts that the federal government could afford to pay the massive matching rate to states forever, and said a rollback in federal assistance would leave Arizona in dire fiscal straits.

“To expand all the way to 133 (percent), while it would initially cost less, would expose the state to potentially backbreaking debt should the federal government wake up one day and realize that they can’t afford any of this stuff and have to pull back the subsidies, which they will eventually have to do,” he said.

— Luige del Puerto and Jim Small contributed to this article.

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