Secretary Smith Questions Federal Limits on His Power to Change BadgerCare

One of the many ways that the federal health care reform law is helping people in Wisconsin is by protecting BadgerCare.  Because of the law’s stability provision, known as the maintenance of effort (MOE) requirement, federal officials rejected Walker Administration proposals that would have caused at least 29,000 children to lose their BadgerCare insurance, and they significantly reduced the number of adults expected to lose their very important coverage.  (See our comparative summary of the proposed and approved changes.)

Dennis Smith, Secretary of the Department of Health Services (DHS), is now raising questions about the enforceability of the MOE requirement, in light of the Supreme Court ruling on the Affordable Care Act.  Contrary to the interpretation of that decision by federal officials and many legal scholars, Secretary Smith says the Court’s ruling may allow states to make program changes that violate the MOE requirement.

If Smith were correct or if Congress repeals the MOE provision, that would remove the only significant impediment to the unprecedented authority he was granted in the 2011 budget repair bill to change BadgerCare and Medicaid without the approval of the Legislature.  (See WCCF’s summary of the sweeping shift in policy-making authority.)   Eliminating that federal constraint would enable DHS to unilaterally proceed with the implementation of the large cuts to BadgerCare it proposed last fall, or to make even deeper cuts.  (Note, however, that a new set of BadgerCare changes would require approval of the Joint Finance Committee if those changes conflict with current state law.) A New York Times article on Friday examines the MOE debate and the threat of Maine’s Governor, Paul LePage, to end Medicaid eligibility of adults over the poverty level, notwithstanding the MOE requirement.  As the articles notes, HHS Secretary Kathleen Sebelius said in a July 10 letter to governors that “the court’s decision did not affect other provisions of the law,” beyond the Medicaid expansion.  In a July 16 memo, the Congressional Research Service (CRS) agreed that the Court’s decision “does not make changes to the current Medicaid program,” including the MOE requirements.  

Nevertheless, Secretary Smith contends the Supreme Court ruling “called into question” the MOE requirement.  According to the NY Times article, he said states won’t necessarily use this as an opportunity to sharply cut Medicaid, but they “will look at this as leverage to bring the administration back to the table.”

As I first skimmed the Court’s ruling, I was briefly concerned that it might undermine the MOE requirement, but that concern was dispelled by a closer reading of the decision. To argue that the ruling makes the MOE provision unenforceable flies in the face of the Chief Justice’s reasoning.  His opinion emphasizes that the case decided in June was different than others upholding federal fiscal sanctions because the sanction the court struck down was for failing to expand coverage in a whole new direction.  The CRS memo elaborates on why that reasoning would not apply to the MOE requirement or to the new standards for calculating family income.  (See pp. 5-7 of that memo.)

It appears that Maine is likely to be the first state to press the issue.  Maine officials have said they will soon file a Medicaid plan amendment to allow the state to cut off Medicaid for about 15,000 parents between 100% and 133% of the poverty level.  Assuming HHS denies the plan amendment, there is likely to be litigation of the issue.

I’ll be surprised if Wisconsin’s DHS does anything of that sort between now and the fall elections because BadgerCare has broad popular support and state officials seemed to be satisfied with the compromise they reached with HHS earlier this year regarding BadgerCare changes that could be made without violating the MOE requirement.  However, after the elections I wouldn’t be surprised if DHS dusts off one or more of its previous proposals and joins Maine in testing the controversial argument that the Court’s decision gives states a free hand to change Medicaid eligibility.

If that argument prevailed, DHS would have unfettered authority to change BadgerCare and Medicaid – without needing any federal waivers or approval of the state Legislature. 

Jon Peacock