WASHINGTON -- Republican governors are making a big request of the Obama administration in return for cooperating on the expansion of Medicaid: They want to overhaul the underlying insurance program that covers 60 million low-income Americans.
If the administration agrees, the battles over the health-care law could have an unexpected outcome: a larger, but more conservative, Medicaid program.
Emerging deals show governors exploring approaches that would significantly reshape the program, such as moving beneficiaries into privately managed health coverage or giving enrollees a greater financial stake in their care.
"The way to approach this is as a leverage opportunity," said Tevi Troy, a Health and Human Services official under President George W. Bush. "I think the smart governors will not just say, 'We'll take the money,' but say, 'OK, give us the opportunity to reform Medicaid.' "
Although Republicans tend to oppose the Affordable Care Act, President Barack Obama's signature legislative accomplishment, they increasingly recognize it as the law of the land.
Now that the legislation has survived a Supreme Court challenge and Obama has been reelected, many conservative analysts are urging governors to take any opportunity they can to reshape it.
"There's a lot of 'Let's make a deal' going on and a willingness to try new things," said Robert Laszewski, president of Health Policy and Strategy Associates.
That is especially true with the Medicaid expansion, where the federal government needs states' cooperation to expand the entitlement program to cover 17 million more Americans.
Twenty-three states have indicated that they will participate in the program, including seven that have Republican governors. Thirteen governors have pledged to opt out of the program, with the rest still deciding.
Medicaid is run as a state-federal partnership, with the two governments splitting the health-care bills. The federal government sets the ground rules for certain populations and services that the Medicaid program must cover, such as low-income pregnant women. It regularly grants states waivers to test new ways to deliver care, or to provide health insurance coverage to a nontraditional population.
Marilyn Tavenner, acting administrator of the Center for Medicare and Medicaid Services, acknowledged the role that flexibility would play in states' decision-making.
"For many of them, they have waivers in process," she said in a recent interview. "So we are trying to be flexible and work as quickly as possible on waivers."
Hours before announcing his decision to expand Medicaid, Florida Gov. Rick Scott, R, had two waivers approved by Health and Human Services. The new flexibility will allow the state to move nearly all Medicaid enrollees into privately managed plans.
This will include people who receive long-term care benefits, usually a more vulnerable and expensive group.
Scott said he told Health and Human Services Secretary Kathleen Sebelius in a meeting in January that the waiver was a pre-condition for Florida's participation in the Medicaid expansion.
Virginia Gov. Robert McDonnell, R, has urged legislators not to move forward on the Medicaid expansion before the state gets the sign-off on a waiver his administration submitted to the federal government in 2012. His plan would expand private management of Medicaid statewide and explore new ways to increase cost-sharing for certain higher-income beneficiaries.
Holding out on the Medicaid expansion, McDonnell argued, gives the state maximum leverage in obtaining new flexibility.
"Unless we maximize the concessions from the federal government in obtaining these reforms prior to considering any specific expansion, our cost-savings opportunity will be lost," McDonnell wrote in a letter to state legislative leaders. "We have one chance to do this right."
Indiana Gov. Mike Pence, R, will consider the Medicaid expansion only if he can move forward using the state's Healthy Indiana Program, which puts new enrollees in a private-style plan with a high deductible.
That program, which began in 2008 under the Bush administration, is unusual because it includes a $1,100 deductible paid for by the program and the enrollee. The goal is to lower costs by giving patients a financial stake in their health-care spending. "It is a consumer-driven plan that is a win for taxpayers and, more importantly, a win for recipients because it encourages people to make the kind of choices that are going to improve their lives," Pence said.
Arkansas Gov. Mike Beebe, D, hopes that federal flexibility will help secure his Republican legislature's support for the Medicaid expansion.
Legislators there proposed a plan that would use the government money to enroll some beneficiaries into private plans, sold on new health insurance exchanges.
"We've had a number of specific requests from the legislative leadership that a few weeks ago most folks would have thought not to be possible," Beebe said. "But after meeting with Secretary Sebelius and her team, some things we thought might not be possible are indeed possible."
Not all governors are open to the Medicaid expansion as a means to achieving more flexibility. Iowa Gov. Terry Branstad, R, told reporters at the National Governors Association meeting that his state would not move forward with the expansion as he continues to pursue a federal waiver.
"We're not going to do that," Branstad said of the Medicaid expansion. "But we are working to try to get a waiver (for) a more modern system that gets people to take more responsibility for their own health and partners with them to provide better health services."