Can Red States Resist Expanding Medicaid?

O bamacare did a lot of things, but one of the most consequential was to expand Medicaid, the joint federal-state program that provides health insurance to the poor and keeps costs low by paying doctors far less than private insurance do. Numerous red states opted out of that expansion, but Democrats are getting ready to make some offers that could be hard to refuse.

The current COVID-relief bill dangles some extra cash in front of states that have yet to expand, and President Biden could give red states flexibility in how they structure their expansions, should they choose to do so. And don’t forget, the offer of Medicaid expansion was already hard to refuse.

Before Obamacare, states could get Medicaid funds to help only certain groups of people, including poor families with children, pregnant women, and the disabled — and some states dipped into that money far more aggressively than others. Obamacare expanded the program to cover adults up to age 64 earning less than 138 percent of the poverty level. States that refused to implement the expansion were supposed to lose all of their Medicaid funding, a huge chunk of state budgets — but the Supreme Court found that condition unduly coercive, ruling that states could opt out without jeopardizing their usual Medicaid funds.

Even with that option, though, states would leave lots of money on the table. The federal government, which pays 50 to 78 percent of states’ basic Medicaid costs (depending on how poor the state is), would pick up 100 percent of the cost of the expansion from 2014 through 2016, a number that would then drop until it landed at 90 percent in 2020.

And still today, states can come out ahead while paying 10 percent of the cost. As a Commonwealth Fund report spelled out last year, expanding Medicaid can reduce a state’s spending on its core Medicaid program (because some folks can be covered at the 90 percent rate who’d normally be covered at the lower one), cover people who’d otherwise rely on state and local health-care programs, and raise tax revenue by bringing money into the state economy. Some states even fund their expansions with special taxes that claw some of the cash back from health-care providers. Meanwhile, if a state doesn’t expand Medicaid, its residents still have to pay the federal taxes that fund everyone else’s expansions.

Now, don’t get me wrong: It’s easy to make the case against the Medicaid expansion as federal policy. It dumps a lot of money into a big-government program — one that’s poorly designed and offers debatable health improvements — and it perversely reimburses states more for helping the expansion population than for helping Medicaid’s core beneficiaries, who are poorer. The expansion also suffers from improper enrollments by people who are not eligible.

But once Medicaid expansion is federal policy, it creates a game-theory situation. If all 50 states worked together to refuse the expansion, they could eliminate all the spending, saving their taxpayers money in the long run. But from the short-term standpoint of any individual state, spending one state dollar to get nine federal dollars is quite the offer.

The appeal of this bargain is obvious from the history of the expansion. About half the states signed up right away, and more and more states have opted in since; only twelve are still holding out. In some red states, voters supported the expansion via referendum when their elected leaders wouldn’t pass it. And expansion states are highly invested in keeping the money rolling in, as we saw during the 2017 attempt to repeal Obamacare, when they resisted the idea of flattening out the funding so non-expansion states would no longer lose out.

Now Democrats are ramping up the pressure even further. Basically, since the initial free period (where the federal government picked up the full cost) is over, the new COVID-relief bill ponies up a new bribe for states that haven’t opted in yet. As Dylan Scott explains over at Vox:

If a state expanded Medicaid now, it would receive a 5 percent bump in federal funding for its traditional Medicaid population for the next two years.

Because many more people are covered by traditional Medicaid than by the expansion, that funding bump would be expected to more than cover the 10 percent share states are asked to pay for Medicaid expansion under the ACA. It’s a new way to sweeten the expansion deal, which already comes with a permanent 90 percent federal match for expansion enrollees, for the holdout states.

A separate Democratic effort would simply restart the clock, with a 100 percent reimbursement that slowly crept down to 90 percent, for states that newly expanded.

Of course, this push comes at a rough time for state budgets. Tax revenue wasn’t hit as hard by COVID as many feared, but many states did suffer a big blow — especially those that rely on tourism or fossil fuels, including non-Medicaid-expanders Florida and Texas. So it will be especially tempting to grab some extra federal money now, and there are still some non-expanding states where advocates can push changes via ballot referendum.

On top of that, Joe Biden has some authority he can use to cut a deal with reluctant states, as Noam N. Levey explains at Kaiser Health News. He notes that “the Obama administration approved conservative Medicaid expansion[s] in Arkansas, which funneled enrollees into the commercial insurance market, and in Indiana, which forced enrollees to pay more for their medical care.” Another possibility might be to put the income cutoff at the poverty line, rather than 138 percent of it.

If you dangle enough federal money in front of state governments for long enough, most of ’em will take it. Who knows how many of the remaining twelve will hold out. Here’s a toast to them, though, for lasting this long.