Terribly Costly Medicaid Expansion Buys Less than Claimed

By John Davidson

A few weeks before President Barack Obama won re-election, Mississippi Gov. Phil Bryant announced that his state would join Texas, Florida, Louisiana and South Carolina in opting out of the federal expansion of Medicaid under Obamacare. He explained that the “free federal money” behind the expansion will cost Mississippians too much. “The reality is simple,” Gov. Bryant said, “no money is free.”

Now that Obamacare is here to stay, governors across the country will have to grapple with the question of Medicaid expansion. At first glance, expansion looks like a good deal for states: The federal government will initially pay for 100 percent of the cost of new enrollees and gradually roll back to 90 percent by 2020.

But it’s unlikely the federal government will continue to subsidize Medicaid at 90 percent for very long after 2020. Already in next year’s budget, Obama has proposed a “blended rate” that combines current Medicaid reimbursement rates with the expansion rate — a formula that would result in a gradual but substantial reduction in federal funding, leaving the states to make up the difference.

It is a classic “buy now and pay later” scheme. The long-term costs of Medicaid expansion will impose a huge fiscal burden that state budgets, already strained by a failing system, cannot bear.

One recent study by the Texas Public Policy Foundation shows that if Texas expands Medicaid, the state will spend $7.3 billion more in 2020 than it would have without the expansion and $15.9 billion more in 2040.

Given these extra costs, several states are concluding, as Texas and Mississippi have, that they simply cannot afford Medicaid expansion without jeopardizing health care access for existing enrollees. Many more states will discover they can’t afford it after it is too late.

That is not only fiscally irresponsible, it is morally indefensible. Providing a health care safety net for specific groups of people — disabled children, pregnant women, the elderly — was the whole reason for Medicaid. The state has a responsibility to ensure that current Medicaid enrollees continue to have access to health care.

But adding a projected 1.5 million Texans to Medicaid rolls over the next decade will place enormous strain on the state budget and could jeopardize coverage for those currently enrolled, who need it most.

The wholesale expansion of Medicaid into a massive welfare program for every family of four earning less than $31,809 per year, as Obamacare attempts to do, completely transforms the program. You can still call it Medicaid, but in reality it is something else.

That is why the Supreme Court ruled in June that the federal government cannot make existing federal funding for Medicaid contingent on states expanding their Medicaid programs. The design prescribed by Obamacare would have trapped many low-income people in Medicaid, excluding them from state-based insurance exchanges and forcing them into dependence on expanded state programs.

But like so many other big-government schemes of the last 50 years, expansion will hurt the very people it was originally meant to help.

The current Medicaid program needs drastic reform, not drastic expansion. As it is, Medicaid leaves states with almost no flexibility to innovate, and the straitjacket will only tighten under Obamacare.

The federal government must discard the straitjacket and give states the flexibility to create innovative programs through block grants of Medicaid funding. Free from burdensome federal rules, and with clear budget limits, states can begin to shape innovative strategies and health care plans based on their unique needs, rather than adhering to Obamacare’s “one-size-fits-all” approach.

John Davidson is a Health Care Policy Analyst atthe Texas Public Policy Foundation

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