The Medicaid expansion decision is particularly important because legal and practical limitations will seriously restrict a state’s ability to exit the expansion. The secretary of HHS may withhold the first dollar of Medicaid funding to states that fail to comply with Medicaid requirements. Given that Medicaid accounts for more than 20 percent of an average state’s total budget, the decision to withhold federal Medicaid dollars could be crippling for many states, and would likely compel a state to reconsider an attempt to opt out of the expansion.
In the states’ challenge to the mandatory nature of Medicaid expansion in National Federation of Independent Business v. Sebelius (a challenge in which both Michigan and Ohio sued the federal government), the Supreme Court stated that the federal government cannot condition the first dollar of existing Medicaid funding upon a state’s decision to expand Medicaid, but it did not say that the secretary of HHS could not still withhold funds from states that, in the opinion of the secretary, fail to meet the objectives of the Social Security Act. Indeed, by the plain terms of the statute, the secretary maintains this discretion to withhold all Medicaid funds.
While HHS has suggested that it will allow states to withdraw from expansion, these statements, which do not constitute administrative rules, are not legally controlling. The federal statute, which grants the authority to the secretary to withhold funds for failure to meet the requirements of a Medicaid state plan, is what will control the court’s inquiry.
Even if there were no legal barrier to exiting expansion, there will undoubtedly be significant political barriers. The decision to curtail what will have become an entitlement program, removing hundreds of thousands of recipients from Medicaid rolls, will necessarily be difficult to execute — even if the federal government has not delivered on a promised or hoped-for waiver.