The Agenda

The Medicaid-Expansion Holdouts

As of now, 29 states are moving towards taking advantage of the Obamacare Medicaid expansion, including states that are seeking some modicum of flexibility in doing so. Another 15 states are not participating, and 7 states are leaning toward not participating. Amy Schatz and Jennifer Corbett Dooren of the Wall Street Journal report on the torrent of new enrollees in participating states, and they briefly address the concerns of state lawmakers opposed to the expansion:

Critics of Medicaid expansion say the program is already overburdened and may not improve the health of enrollees. Some are also raising concerns that expanding Medicaid could siphon off some younger, healthy people who could otherwise have gotten private coverage.If private insurers end up with an older, sicker population, it could threaten the Obama administration’s promise of affordable coverage, said Drew Gonshorowski, policy analyst at the think tank Heritage Foundation, which opposes Medicaid expansion. “They need young, healthy individuals to support them so premiums don’t go up next year,” he said.

Yet if Obamacare survives the next couple of years intact, it is easy to imagine many if not most of the Medicaid expansion holdouts relenting. Michael Greve of George Mason University Law School describes the basic dynamic as follows:

[I]n the fiscal arena, the joint exercise of federal and state powers under spending programs—“cooperative federalism,” as it is called— drives the growth of government. Federal subsidies systematically induce state and governments to overspend, both because they do not want to “lose” federal dollars and because they expect that the federal government will bail them out of trouble (as it has done repeatedly, through Stimuli and other means). The system produces a level of spending that neither the federal government nor even the most profligate state would adopt if individual governments had to match their spending with taxes.

And Don Taylor of Duke University observes that because the states that are rejecting the Medicaid expansion tend to be less affluent than those that have embraced it, the net result of resistance has been less redistribution from rich to poor states than we would have seen otherwise:

While the Medicaid program is not the only means through which richer states have cross subsidized poorer ones, it has been a large and consistent source of such flows. By choosing not to expand Medicaid, the poorer, mostly politically “red” states are redistributing money toward the richer, mostly politically “blue” ones (there are exceptions; red Kentucky is both expanding Medicaid and has one of the best functioning State exchanges). Further, those States that are expanding Medicaid have also tended to set up state-based insurance exchanges, which are currently operating much better than the federal one, meaning that income based subsidies associated with the purchase of private health insurance may flow less freely to poorer states, at least in the short term. And there is a court case that could stop the flow of such subsidies to states not operating their own exchange all together. I have not tried to estimate the magnitude of these sources of redistribution from poor to rich states under different scenarios because things are so fluid, but the Medicaid numbers outlined are potentially just the start.

The bottom line is that if the current State Medicaid expansion decisions persist, the unintended story of the ACA will turn out to be the redistribution of money from poorer States, to richer ones, an outcome imposed by the poorer states, upon themselves. I will write more about what I think this means for the future of health reform over the next few days.

Rejecting the Medicaid expansion may well be the right policy, as Avik Roy and Grace-Marie Turner have argued. A number of states, including Arkansas and Wisconsin, have sought to use the insurance exchanges as an alternative to the Medicaid expansion, and the case for doing so seems fairly strong.

But the political cost of rejecting the Medicaid expansion will prove very high, for advocates will, as Greve anticipates, argue that rejection represents a senseless “loss” of federal dollars. Given that taxpayers in states that reject the expansion won’t get back the federal taxes they pay to finance the expansion, states will forgo a tangible (if flawed) benefit in exchange for the intangible satisfaction of possibly helping to unravel a deeply problematic law. This might seem like a decent trade while the future of Obamacare is in doubt. It won’t seem quite as attractive if the law proves durable. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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