The Agenda

Brief Thoughts on the PPACA Medicaid Expansion

Jeffrey Young, who covers the politics of the U.S. health system for The Huffington Post, has a short piece on “health care reform defiance by Republican governors,” i.e., the refusal of a number of Republican governors to embrace the Medicaid expansion that is a central part of PPACA in the wake of the recent Supreme Court decision: 

A growing number of Republican governors, including [Rick] Scott [of Florida], Terry Branstad of Iowa, Bobby Jindal of Louisiana, and Scott Walker of Wisconsin say they won’t carry out any parts of the law, which threatens to deny millions of poor people access to the Medicaid coverage it provides.

But Obama and those uninsured people aren’t the only ones who stand to lose. Hospitals that currently treat the poor for free in emergency rooms were counting on a broad expansion of health insurance coverage to cut down on the number of unpaid bills on their books. The American Hospital Association and other national industry groups endorsed the health care reform law, calculating that more insured people would make up for $155 billion in lower Medicare payments over a decade.

A smaller Medicaid expansion would be bad news for hospitals, especially in states like Florida and Texas with large numbers of uninsured people, according to Sheryl Skolnick, a health care equities analyst at CRT Capital Group in Stamford, Conn. “That risk is real and meaningful: the hospitals may end up paying for the poorest and sickest of today’s uninsured anyway AND see cuts in Medicare and Medicaid on top of that,” she wrote in a note to clients Friday.

Young’s piece is vividly written. What strikes me as particularly interesting about Young’s take is that hospitals in question aren’t incidental beneficiaries of Medicaid expansion. They are perhaps better understood as the main constituency that “stands to lose,” as many of the uninsured people in question might prefer an increase in cash transfers over Medicaid expansion. And of course the federal government could easily increase cash transfers commensurate with the cost of Medicaid expansion, with no constitutional questions or concerns. Medical providers, however, would scarcely benefit from an increase in no-strings-attached cash transfers, but of course they capture virtually all of the new spending from Medicaid expansion. 

This brings us to another way of looking at the developments Young covers in his article: the Republican governors in question may well believe that the larger PPACA architecture is unsustainable. That is, it seems possible that these governors are not interested in denying millions of poor people access to insurance coverage for its own sake. Rather, they might believe some combination of the following:

(1) that PPACA will undermine U.S. growth prospects because it will exacerbate cost growth, which will in turn increase deficits or create a powerful impetus for tax increases;

(2) diminished economic growth will contribute to stagnation in wage and household income growth, which will in turn make it more difficult for households to climb the economic ladder and secure unsubsidized insurance coverage;

(3) a health system reform that seeks to contain cost growth through progressive cost-sharing, deregulation designed to facilitate business-model innovation, and other market-oriented measures will become more likely if PPACA is politically defeated.

During the debate over health system reform, the individual mandate, state-based exchanges, income-based premium support, and the creation of a global budget for Medicare and a powerful entity designed to promote payment reform garnered a great deal of attention. But the law’s expansion of Medicaid and CHIP were crucially important to making its larger architecture work. By expanding the Medicaid and CHIP rolls by 16 million by 2019, per the CBO projection, the law aimed to contained the high costs associated with the premium subsidies for non-affluent households that secured their coverage via the state-based exchanges, as Medicaid and CHIP are considerably less expensive per-person than the exchange subsidies. It is easy to see why PPACA sought to strongly encourage — some would say coerce — state governments to accept the Medicaid and CHIP expansions. States that refused to expand eligibility per the law’s stipulations would forfeit all federal funding. That is a provision that the Supreme Court has struck down, to the surprise of many observers.

Avik Roy has done an excellent job of explaining this aspect of the law, and he notes the following:

[N]ow that states can opt out of the law’s Medicaid expansion, states that currently cover people above 100 percent of FPL with Medicaid now have a significant financial incentive to shrink Medicaid eligibility down to 100 percent of FPL, and let the federal government (read: taxpayers in other states) pay for the rest. …

A countervailing aspect to the ruling is that, for the 23-24 states that have minimal Medicaid programs, many people below 100 percent of FPL may not get any insurance coverage at all, and the federal government pays for the majority of that spending under the Affordable Care Act. But several big states like New York have expansive Medicaid programs, and would now have the option to pare back their Medicaid programs.

This countervailing aspect is what leads Josh Barro to conclude that most of the states that are now claiming that they will refuse federal funding for coverage expansion are blowing smoke

If Josh is right, i.e., if PPACA survives and less-affluent states find that they are leaving large sums of federal money on the table by refusing to accept Medicaid expansion, the scenario that Young describes, in which hospitals and other medical providers are denied large sums of federal money, starts looking very unlikely indeed. The nightmare scenario won’t materialize because few governors will be able to resist the power and influence of medical providers.  

But if PPACA does not survive — if a growing number of voters embrace the view that the law creates an unsustainable “four-tranche” universal health system that introduces massive problems of horizontal inequity, i.e., similar households being treated in extremely dissimilar ways — the decision by Republican governors to stand against it, and to jeopardize the deficit projections on which the law’s shaky political foundations rest, may well be seen as an important contributing factor. 

Note that this is why it is crucially important for the law’s proponents to characterize Republican governors who oppose PPACA’s particular model of coverage expansion as opponents of coverage expansion for poor people as such. Conflating opposition to PPACA with opposition to helping the poor and the sick is good politics.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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