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Options are narrowing for states, such as Utah, that remain undecided over whether to expand Medicaid to cover more poor adults.

When the U.S. Supreme Court upheld federal health reform, but made expanding eligibility for Medicaid optional, state governors got to wondering whether a partial expansion was possible.

Doing so would keep costs manageable for states, which would still benefit from generous federal funding. The feds are picking up the full tab for newly eligible enrollees for the first three years — a nice deal, considering they pay 70 percent for existing enrollees.

But in a letter Monday to state governors, U.S. Health and Human Services Secretary Kathleen Sebelius was clear: The federal government will not pay full freight for a partial expansion.

"Congress directed that the enhanced matching rate be used to expand coverage," reasoned Sebelius. "The law does not provide for a phased-in or partial expansion."

Low-income advocates say the decision is a game-changer for Utah, where the powerful hospital lobby, which arguably has the most to gain from an expansion, was angling to limit expansion. Hospitals have instead suggested giving subsidies to some poor adults to buy their own private insurance.

"Secretary Sebelius' decision clearly draws a line in the sand. If you're in ... you fully expand Medicaid," said Matt Slonaker, Medicaid policy director for the Utah Health Policy Project. "If you're out, you're out."

But Utah Hospital Association President Rod Betit disagrees.

"It's another wrinkle ... It makes the stakes higher," he said.

But, he stressed, there's still plenty of time for Utah's policy and industry leaders to weigh alternatives.

"We're still a year out from having to implement the [expansion]," he said.

Indeed, states face no deadline to decide. Sebelius said she'll consider state proposals for partial expansions at the regular federal rate.

States that choose to expand will have some freedom to design benefits packages similar to those sold commercially, she added.

"We also intend to propose further changes related to cost sharing," which has traditionally meant charging enrollees more for their care.

Betit said that could free Utah to do what it did with the Children's Health Insurance Program (CHIP), which is modeled after the average employer-sponsored health plan and can have higher out-of-pocket costs.

The program is popular with families, financially healthy, cost effective — and, importantly, was more palatable to conservative lawmakers, Betit said.

But Lincoln Nehring, a health policy analyst at Voices for Utah Children, argues there is no more cost-effective way than traditional Medicaid to cover adults living at 138 percent of poverty or earning just over $15,000 a year — those who would largely benefit from the expansion.

For Medicaid, annual growth in per enrollee spending averages 6 percent, compared to 10.6 percent for private insurance and 12.6 percent for employer-sponsored benefits, according to the Kaiser Family Foundation.

Utah Republican Gov. Gary Herbert, who hasn't made up his mind on the expansion, did not immediately respond to requests for comment Monday.