On Thursday, the U.S. Supreme Court ruled on the constitutionality of the Patient Protection and Affordable Care Act, upholding the law's individual mandate as a valid exercise of Congress's taxing power but striking down, as unconstitutional, that part of the Medicaid expansion provision, which withdraws existing Medicaid funding to states that choose not to participate in the new program expanding health care to citizens whose incomes fall below certain threshholds.
Chief Justice Roberts' opinion states that the Court limits the financial pressure that may be applied to induce States to accept the terms of the Medicaid expansion. Congress may not penalize states that choose not to participate in the new program by taking away their existing Medicaid funding.
What impact this will have on the states and state taxes is unclear.
As a practical matter, however, the Chief Justice noted that states may now choose to reject the expansion. "Some may indeed decline to participate, either because they are unsure they will be able to afford their share of the new funding obligations, or because they are unwilling to commit the administrative resources necessary to support the expansion. Other States . . . may voluntarily sign up, finding the idea of expanding Medicaid coverage attractive, particularly given the level of federal funding the Act offers at the outset."
Under the Act, the federal government will help states pay for Medicaid expansion. Between 2014 and 2016, the federal government will pay 100 percent of the Medicaid expansion; in 2017 the federal government will pay 95 percent, which will decline to 90 percent by 2020.
Estimates from a September 2009 report by the Council of Economic Advisers state that California would pay approximately $195 million when the federal government paid 90 percent of the Medicaid expansion in 2020. But the state would save more than $210 million in reduced state employee premiums and $2 billion in uncompensated care, resulting in a net savings of more than $2 billion. Similarly, Wyoming would save about $1 million, and Montana would save about $9 million. See NY Times, Opinion Page, Questions on Health Care.
What is clear is that Congress may not penalize states that choose not to participate in the new program by taking away their existing Medicaid funding.
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