Ben Boychuk and Pia Lopez

Head to Head: Should states opt out of Medicaid expansion in health care reform?

Published: Thursday, Jul. 26, 2012 - 12:00 am | Page 15A
Last Modified: Thursday, Jul. 26, 2012 - 6:17 am

THE ISSUE: The U.S. Supreme Court upheld the Affordable Care Act, but overturned a provision that would require states to expand Medicaid coverage to childless adults or lose all of their existing federal Medicaid funds. That opened the door for states to opt out of the expansion. So far six Republican governors have chosen not to expand their states' programs, including Texas and Florida.

Should states opt out of Medicaid expansion in health care reform?

Ben Boychuk: Yes

It's probably too much to ask Gov. Jerry Brown and a Democratic Legislature to rethink what, at a superficial glance, looks like a pretty deal for states. But the proposed Medicaid expansion under Obamacare harbors risks that California and other struggling state governments can ill afford.

Right now, the federal government contributes $1.33 for every dollar a state spends on Medicaid. The current arrangement gave many states incentive to expand their Medicaid coverage, because it's effectively subsidized by their more fiscally prudent neighbors.

Under Obamacare, starting in two years, any American with an annual income less than 133 percent of the federal poverty level – $30,657 for a family of four in most states – will be eligible for Medicaid. The feds will pay for 100 percent of the cost of the program's expansion for three years, gradually paring back subsidies to 90 percent by 2020.

At least, that's the plan right now. What's to stop a Congress facing ever-greater pressure to cut the budget deficit and control a multitrillion-dollar debt from reducing Medicaid subsidies further, placing an even heavier burden on the states?

And even that may not be the biggest problem. States have reason to worry about the so-called "woodwork effect," which posits that millions of Americans currently eligible but not enrolled in Medicaid will sign up, at a cost of billions of dollars.

The "kicker," explains my Manhattan Institute colleague Avik Roy at his indispensible Apothecary blog, is that the "woodwork population" won't get Obamacare's 90-100 percent funding rate. Rather, Roy says, "their expenses will be covered under the traditional (Federal Medical Assistance Percentage), meaning that states will be on the hook for 43 percent of the costs." Costs that will run into the billions.

Medicaid expansion is basically a one-way street. Such an entitlement, once extended, is almost impossible to revoke politically and perhaps even legally. If – when – states need to reduce Medicaid spending, but can't make fewer people eligible for Medicaid, what will they do?

Roy offers a fairly straightforward answer: "Pay doctors less."

California, as it happens, already has one of the lowest Medicaid reimbursement rates in the union, ranking 47th out of 50 states. And while it's true that Medi-Cal reimbursements will increase in 2013 and 2014 to Medicare levels, that's a temporary inducement by design. It's hard to see how Obamacare improves the quality of care under Medicaid in the long term, not when California and other states are facing expanded patient rolls with considerably less tax revenue to pay for them all.

Ben Boychuk is associate editor of the Manhattan Institute's City Journal (

Pia Lopez: No

Congress in 1965 launched a federal-state partnership to offer health coverage to certain individuals – needy parents and children, plus low-income disabled people and the elderly (primarily for nursing home care not covered by Medicare).

States were not required to participate in Medicaid. But if they did, the federal government paid at least half the cost – 50 percent to 83 percent, depending on the per capita income of the state.

Most states signed on the first year, including California. Twenty states, however, took a while. Eleven joined in 1967, eight in 1970. The last holdout, Arizona, joined in 1982.

Expect something similar with the expansion of Medicaid to lower-income childless adults under the Affordable Care Act. That expansion would provide coverage, for example, to the 28-year-old who has aged off his or her parents' insurance but is in a low-paying job 37 hours a week without benefits – or is unable to find a job.

These individuals need health insurance – and the Affordable Care Act requires them to carry health insurance starting in 2014.

It would be a cruel joke, indeed, if holdout states abandoned childless adults who have little or no income.

Beginning in 2014, Medicaid expansion in combination with the Affordable Care Act's subsidies for lower-middle-income folks to buy insurance in state exchanges should allow most uninsured Americans, finally, to get affordable coverage.

In a cost-benefit analysis, opting out of Medicaid is crazy. The federal government will pick up 100 percent of the cost for the newly eligible individuals the first three years; that rate gradually decreases to 90 percent by 2020. That's a whole lot better than the 50 percent to 83 percent the federal government pays today – and every state finds it beneficial to participate.

Contrary to Ben's claims, virtually every credible study to date, from the Congressional Budget Office to the Kaiser Family Foundation, shows that states will experience a small increase in general fund spending on Medicaid, but that increase pales in comparison to health costs states would bear if there were no health reform.

California already has done the smart thing. It is among five states that adopted the expansion early. So far, 400,000 formerly uninsured adults now have health insurance under Medicaid – called Medi-Cal in California. The state expects that to be 500,000 by 2014.

Covering non-elderly adults costs Medicaid relatively little, but it saves everybody from the cost-shifting that would occur if they didn't have insurance. Non-elderly adults account for 24 percent of Medi-Cal enrollment but only 14 percent of the cost.

Ben fears that a future Congress might decide to stop the generous federal share in paying Medicaid costs. Well, yes. That's what elections are for. We voters can elect people committed to coverage who will not let that happen.

Pia Lopez is an editorial writer at The Bee.

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