Confused yet? It gets worse. Keep in mind that most ofthese are only proposed responses to Obamacare. In many cases, state legislatures have yet to act on them. Some legislatures will say no. Plus, some Republican governors whom Obamacare supporters are currently touting as converts, such as Ohio’s John Kasich and Virginia’s Bob McDonnell, have made their support for Medicaid expansion conditional on cost containment and federal funding guarantees. And Florida governor Rick Scott’s much-touted announcement for Medicaid expansion came at the same time that the Obama administration announced plans to let him expand his state’s Medicaid managed-care pilot program, which many fiscal conservatives praise as a model for reducing costs.
There’s a reason why governors and legislatures have gone off in various directions. With both insurance exchanges and Medicaid expansion, there are many moving parts to consider. If you are a conservative politician who espouses devolution of power to states and keeping a lid on state budgets, Obamacare’s provisions hold some attraction. You may see running an exchange as superior to ceding control over your health-insurance market to Washington (although this hope has proven to be largely a mirage, given recent federal regulatory filings). And it may seem fiscally prudent to draw billions of dollars in new federal Medicaid funds, which not only displace state spending on the uninsured but also bring in additional tax revenues from the medical providers that receive them. These arguments look even more persuasive if you know that one of the most powerful lobbies in your state, the one representing private health insurers, will support a state-run exchange, and another powerful lobby, that representing hospitals, will support a Medicaid expansion.
However, the attraction of these options depends heavily on one’s time horizon and expectations. In announcing his plans for Medicaid expansion, Chris Christie referred to Obamacare as “the law of the land.” It is — for now. If the law survives intact, states will eventually have to figure out the least costly way to live with it. But most Republican leaders, and even some Democrats, have concluded this isn’t the most realistic scenario. Obamacare has never been popular with the public, and it is likely to become less so as health premiums skyrocket and long lines form at doctors’ offices, pharmacies, and emergency rooms. (Contrary to popular belief, Medicaid coverage increases the use of ERs rather than reducing it.) If the federal courts agree with the state of Oklahoma that Obamacare’s mandates and taxes apply only when states set up their own exchanges, then defaulting to a federal exchange will shield state residents from these harmful effects and force Congress to rewrite broad swaths of the Affordable Care Act. In that case, we’ll have a new and better “law of the land.”
As for Medicaid expansion, Obamacare assumes that future Congresses and presidents will implement offsetting Medicare cuts far larger than the 2 percent that President Obama objected to in the recent federal budget sequester. It also assumes the perpetuation of an odd division of labor between Washington and the states: Washington will pay virtually all of the cost of covering less-needy new Medicaid recipients while compelling states to continue shouldering a substantial share of the cost of serving those who are already using the program, including children, the disabled, and the desperately poor. Will that division of labor really make sense to anyone in five or ten years, particularly as the pressure to reduce federal budget deficits continues to grow?
Furthermore, states assume low rates of what is called “crowd out,” in which individuals capable of securing private insurance enroll in government plans instead. But in past Medicaid expansions, significant numbers of individuals have either dropped their private insurance to get the “free” health care they were now entitled to or else stayed on Medicaid when they would otherwise have become ineligible and found private coverage. Both decisions led to higher-than-projected Medicaid enrollment and cost. These past expansions have had crowd-out rates of 50 percent or higher — that is, of the people who received Medicaid because of the expansion, more than half would have had private insurance otherwise.