I continue to think that the greatest threat to the coverage expansion in the health care law is the resistance from state governors to the expanded Medicaid requirements. Even though the federal government will pay for virtually all of the costs of expansion, governors in cash-strapped states don’t want to maintain their current level of Medicaid benefits, and basically want to kick people off the Medicaid rolls. As Medicaid expansion accounts for fully half of the coverage expansion in the bill, this represents a real conundrum for the White House, whose coverage numbers cannot possibly come through if states can essentially opt out of Medicaid expansion.

The solution so far from HHS has been to remind states of their flexibilities under current Medicaid laws. Basically, she’s trying to bargain with these states by telling them they can fight fraud, stop paying for duplicative prescription drugs and even reduce benefits before denying eligibility. Here’s the benefit part, from her letter:

Modifying Benefits. While some benefits, such as hospital and physician services, are required to be provided by State Medicaid programs, many services, such as prescription drugs, dental services, and speech therapy, are optional. States can generally change optional benefits or limit their amount, duration or scope through an amendment to their State plan, provided that each service remains sufficient to reasonably achieve its purpose. In addition, States may add or increase cost sharing for services within limits (see attachment for details). Some States have opted for more basic benefit packages for higher-income enrollees (e.g., Wisconsin provides benefits equivalent to the largest commercial plan offered in the State plus mental health and substance disorder coverage for pregnant women with income between 200 and 250 percent of poverty). A number of States charge beneficiaries $20 for non-urgent emergency room visits or use cost sharing for prescription drugs to steer individuals toward generics or preferred brand-name drugs. To the extent States scale back low-value benefits or add fair cost sharing that lowers inappropriate use of care, savings can be generated.

So here’s Kathleen Sebelius, desperately trying to keep Medicaid beneficiaries under some kind of “coverage,” telling the states they can drop prescription drugs, dental services and speech therapy; add “cost sharing” (which means put the burden on low-income Medicaid beneficiaries with higher co-pays or deductibles); tier their benefits package so that “higher-income enrollees” – meaning those who make maybe 133% of poverty – get less benefits; and add a $20 co-pay for ER visits or higher prices for brand-name prescription drugs.

What we have here, then, is Sebelius advocating for worse Medicaid coverage, as a better solution than no coverage at all. She’s not really wrong about that, but this “flexibility” is a downward spiral. It invites cuts to Medicaid that will have negative real-world effects on beneficiaries. Sebelius even hints that she would waive “maintenance of effort” rules put in place with the last handover of $16 billion in enhanced Medicaid funding passed last year. In other words, states would be able to reduce eligibility for certain Medicaid subscribers without risking those federal funds.

Sebelius recommends a lot of other ideas here, including managing high-cost individuals in Medicaid (1% of beneficiaries account for 25% of costs), moving to coordinated care to save costs, setting prices for prescription drugs with pharmaceutical companies, integrating care for “dual eligibles” who have both Medicaid and Medicare, and fighting Medicaid fraud. But the important thing here is the green light given to chop benefits. Perhaps that’s the only option given all the right-wing governors elected in 2010. But the result is worse benefits under Medicaid for millions.

More from the New York Times, including this bit from an anonymous official:

An administration official, discussing the letter on condition of anonymity, said: “Cuts can hurt people. We certainly see that.”

Good to know.