States May Rely on the Supreme Court's ObamaCare Ruling to Start Cutting Medicaid Eligibility Immediately

The biggest policy change in the wake of the Supreme Court's ObamaCare decision is that states are now free to opt out of the health law's Medicaid expansion without risking existing federal Medicaid funds. That expansion isn't scheduled to occur until 2014, but some states are planning to use the ruling as an opportunity to reduce their Medicaid enrollment now, according to The Wall Street Journal. 

That's because ObamaCare doesn't merely expand the health insurance program for low income and disabled persons in 2014. It also prohibits states from tightening their current Medicaid eligibility requirements to allow fewer individuals to qualify—or, once again, put federal Medicaid dollars at risk.

Normally during a downturn, states would just shrink their programs by altering eligibility requirements, but as a result of ObamaCare many have had to struggle to keep them up.

That's especially difficult in a recession, as Washington state's Medicaid director told Governing magazine back in 2010, because Medicaid is a countercyclical program that grows as the economy wanes. "What kills us is caseloads. When you have an economic downturn like we're experiencing, people are out of work, they lose insurance and they're now eligible for an entitlement program. You add 400,000 to your caseload and spending goes up."

States have resorted to cutting physician payments and benefits instead. But that has resulted in other problems. In California, for example, health providers launched a lawsuit against the state's Medicaid reimbursement cuts. Hawaii, meanwhile, was told it's not allowed to limit hospital admissions through the program. And cutting benefits can only go so far. As Washington state's Medicaid director explained, "Even if we eliminate every single optional benefit, we still don't get there."

But thanks to the Supreme Court's ObamaCare decision, which said that ObamaCare's threat of yanking federal Medicaid funds represented an unconstitutional attempt by the federal government to coerce states into following its orders, some states now reportedly think they can tighten eligibility requirements in their Medicaid programs without asking for the federal government's permission. Maine will likely be the first, according to the Journal:

Within hours of the Supreme Court's ruling on June 28, lawyers in the Maine attorney general's office began preparing a legal argument to allow health officials to strike more than 20,000 Medicaid recipients from the state's rolls—including 19- and 20-year-olds—beginning in October to save $10 million by next July.

"We think we're on solid legal ground," Attorney General William Schneider said in an interview. "We're going to reduce eligibility back to the base levels in a couple of areas," he said. Maine, like some other states eyeing cuts, earlier expanded its Medicaid program beyond national requirements.

*Post updated for clarity.