Conservatives and the Medicaid Expansion
Conservatives may only tinker while Obama overhauls the welfare state.


With little fanfare, Michigan began enrolling people in its new Medicaid program at the beginning of April. Michigan, which in 2010 came under undivided Republican control for the first time since 1998, has passed laws enacting favorite conservative causes — most notably passing legislation in December 2012 to turn this historic stronghold of labor unions into a right-to-work state. So it was somewhat surprising that Michigan governor Rick Snyder broke with national Republicans and agreed late last year to a core provision of Obamacare: the Medicaid expansion. On April 1, that expansion went into effect.

Michigan stands out among Republican-controlled states, but it is not alone. Most red states have refused to expand Medicaid, the government’s health-insurance program for the poor, while all blue states quickly jumped onto Obamacare’s expansion of the entitlement program (and all the new funds that go along with it). But a group of states with significant Republican control, such as Michigan, Arkansas, Iowa, and, most recently, New Hampshire, are trying to chart a middle way by using seemingly conservative means to expand their states’ Medicaid programs.

Obamacare’s Medicaid expansion provides an opportunity for Republicans to reform the welfare state by applying conservative ideas and principles, and some GOP-led states are trying to seize this opportunity. Despite their best efforts, though, these states are hamstrung by federal regulations and control of Medicaid. The Obama administration is limiting their ability to innovate and their capacity to stake out a fundamentally different vision of welfare in the United States from the one implied in Obamacare.

Medicaid was created in the same 1965 Great Society bill that created Medicare, and both programs were intended to serve populations that were falling through the cracks of society. While Medicare is available to everyone over the age of 65 regardless of financial means, however, Medicaid (which is run in a state-federal partnership) has traditionally been available only to those deemed unable to care for themselves: poor children, pregnant mothers, and the disabled.

Because the program targeted these specific groups, most states did not provide Medicaid insurance to healthy adults without children, creating a “coverage gap.” This gap followed the logic of safety-net programs: The programs caught people when they were falling helplessly and prevented complete catastrophe, but they were not an entitlement available to all. Healthy adults are capable of providing for themselves in ways that children and the disabled are not. As a result, states did not provide free health insurance to those who could reasonably be expected to take the steps necessary to obtain it themselves.

Obamacare changed all this. Obamacare seeks to expand access to health insurance as broadly as possible without regard to an individual’s circumstances. As a result, the law encourages states to expand the eligibility for Medicaid to 138 percent of the poverty level for everybody, including healthy adults, without regard to individual circumstances. Health care is a “right for every single citizen of these United States of America,” President Obama said recently — and the goal of Obamacare is to make sure that all have the same access regardless of their choices and priorities.

Conservatives see several traps inherent in the administration’s approach to the welfare state, what some might call an “entitlement” vision as opposed to a narrower “safety net” vision. Entitlements can too easily reduce the motivation of individuals to work and advance themselves, and they reduce the necessity of personal responsibility. This dependence on a distant, faceless, but nearly omnipotent provider degrades the character of the people and consequently weakens the fabric of society by isolating and infantilizing individuals.

The Medicaid expansion under Obamacare is a move toward the “entitlement” vision of welfare, but it does not have to be. Michigan and its neighbor to the south, Indiana, illustrate the potential for conservative welfare reform and how the Obama administration is stifling innovation.

In 2007, then-governor Mitch Daniels led Indiana to adopt the “Healthy Indiana Plan,” or HIP, which combines a high-deductible private-insurance plan with a health-expense-specific savings account (called a POWER account). Under HIP, the state expanded Medicaid to the same group covered by the Obamacare expansion — healthy adults who didn’t otherwise qualify for Medicaid (albeit with an enrollment cap, causing some still to be left out) — but simultaneously required much more from them than what traditional Medicaid demanded.

The insurance plan had a high deductible, $1,100, meaning that the participant would have to pay the first $1,100 in medical costs. The POWER account provided the means for paying this deductible. Almost all HIP participants, regardless of income, made monthly contributions to their POWER accounts, with the amount varying from 2 to 5 percent of income. The state then supplied the difference between the $1,100 deductible and the participant’s contribution, giving the individual the means to pay the deductible. Federal Medicaid regulations do not allow this much cost-sharing from program participants, and so Indiana’s divergence forced it to pursue a waiver from the Bush administration. The administration granted it.