The Medicaid Nuclear Option
Think Medicaid is wasteful? Wait till you see what comes next, courtesy the House bill.


The option has no downside, either fiscal or moral. States can shift all their Medicaid costs to Washington and use the savings to balance their budgets, expand other services, or cut taxes. Plus, today’s Medicaid recipients would be in a position to purchase the same private health plans as their middle-class neighbors.

If you are a governor trying to close gaping state budget holes, what’s not to like about that deal?

Smith and Haislmaier conclude:

By piling billions of dollars in new costs onto states and imposing greater federal control over the states, Congress is recklessly increasing the likelihood that states will exert their own authority as sovereign units of government and end their participation in Medicaid entirely.

The savings to state budgets are so enormous that failure to leave Medicaid might be viewed as irresponsible on the part of elected state officials. The federal government, however, would be left holding a trillion-dollar-plus tab.

Indeed, at least one Medicaid director, Washington state’s Doug Porter, has already hinted that his state would jump ship. Porter said: “I can foresee a situation where states would say, ‘I don’t have enough in general funds to put up my share of this new expanded Medicaid program, and I have to get out of the Medicaid program.’”

Smith and Haislmaier calculate that if all 50 states were to exercise the Medicaid Nuclear Option, between 2013 and 2019 states would shift up to $725 billion in spending to the feds. And because of the generosity of the proposed federal subsidies, the total cost to Washington, D.C., would be even greater, approaching $1 trillion. These costs, moreover, would continue to skyrocket in subsequent years.

California alone would be in a position to offload a cool $126 billion (its share of the current MediCal program over that period) to federal taxpayers. In Texas, the shift would total $60.7 billion; in Illinois, $47.3 billion; in New York, $47.2 billion; in Massachusetts, $39.8 billon. And so it goes.

This is but one more of the rapidly expanding number of unintended consequences latent in the massive health-care bills being conjured up by Congress. The Congressional Budget Office ignored — or, more likely, just plain missed — this one in estimating the cost of the House bill. But when the official scorekeeper on Capitol Hill can miss a $725-billion item hidden in the thousands of pages of dense legislative text, you can’t help wondering what other ticking time bombs remain undiscovered.

– Michael G. Franc is vice president for government relations at the Heritage Foundation.