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Medicaid: To Expand or Not to Expand

July 02, 2012 J

By: Nicole Kaeding

With last Thursday’s ruling on the constitutionality of the President’s health care law, the Court delivered a hidden victory to supporters of limited government and principled federalism. For the first time in modern American history, the Court ruled that there is a limit to Congress’s power in compelling state action. Congress’s attempt to vastly expand Medicaid, and financially punish states for not complying, was ruled a coercive use of congressional authority. Now States must decide whether to implement this failed expansion.

Medicaid is a jointly run state-federal program providing insurance to three main groups: low-income individuals, the disabled and pregnant women. The federal government picks up the bulk of the costs with its share ranging from 50 to 73 cents on the dollar.

Under the President’s health care law, Medicaid eligibility would vastly expand to all individuals below 133% of the federal poverty level—approximately $30,000 for a family of four.  An estimated 17 million people will join Medicaid starting in 2014. In order to encourage states to participate in this expansion, the federal government will pick up 100% of all expenses for the first three years, with the rate falling to 90% in 2020. Before the Court’s decision, if a state refused to comply with the expansion, that state lost all of its Medicaid funding, including for the groups previously covered. The Supreme Court ruled that punishment was so severe that it essentially left the States with no meaningful choice on whether to comply, and was thus coercive.

What should a state do? The answer is quite simple: States should refuse to expand their Medicaid population. 

First, a move to expand the Medicaid population is a move to support the President’s law.  Even though the law is constitutional, that does not make it good policy.  States should join together and force the federal government to reform.  States all ready hate the current Medicaid system due to the numerous regulations and red-tape from Washington, D.C. States function as de-facto administrators of the federal government’s failed health care policies.  Just last year, legislators in Washington State and Texas, two states on opposite ends of the political spectrum, moved to free themselves from Washington, D.C.’s stranglehold. States have a choice and should exercise it.  As Chief Justice Roberts wrote in one portion of the decision: “The States are separate and independent sovereigns. Sometimes they have to act like it.”

Second, states can’t afford the Medicaid expansion.  Even though the federal government will pick up costs for the first several years, states will be stuck with an ever increasing share of the cost.  From 2014 to 2019, conservative estimates put the states’ cost of expansion at $21 billion.  States like Texas will need to pay more than $2.6 billion as almost 1.8 million individuals are added to its Medicaid rolls. It’s tempting to take the federal money that’s lying in front of you, but it’s simply too good to be true. The President actually hinted earlier this year that the federal government gravy train on Medicaid will be ending shortly. Expanding Medicaid will lead to more government spending and tax increases.

Finally, states must remember that Medicaid is a broken health care system.  Its provider payments are all ready too low causing poor health outcomes.  A recent study found that uninsured individuals have better health outcomes than Medicaid recipients.  In fact, more than 28% of doctors surveyed refuse to accept new Medicaid patients. Why would states want to force individuals into a failed health care system?

Even after only a few days, states thankfully are realizing how bad of a deal this Medicaid expansion is.  Both Governors Rick Scott of Florida and Nikki Haley of South Carolina confirm their states will not participate in this unworkable structure.

The Supreme Court gave States a say for the first time. It is up to them to decide whether or not they want to expand their Medicaid program.  States should unite together and tell the federal government no to a broken and costly system.

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