The real Medicaid problem

By Robert J. Samuelson

The White House recently put out a 40-page report arguing that the 24 states that have not expanded Medicaid coverage under the Affordable Care Act (ACA or “Obamacare”) are hurting their poor and themselves. It’s an easy case to make, but it’s incomplete and misleading. The further truth is that Medicaid also threatens to crowd out spending for many traditional state and local functions: schools, police, roads, libraries and more.

Indeed, this has been happening for decades. From 1989 to 2013, the share of states’ general funds devoted to Medicaid has risen from 9 percent to 19 percent, reports the National Association of State Budget Officers. Under present law, the squeeze will worsen. The White House report doesn’t discuss this. The paradox is that a progressive program also has unprogressive consequences.

First, some background.

Passed by Congress in 1965 as part of Lyndon Johnson’s Great Society, Medicaid is health insurance for the poor. In 2012, it covered almost 58 million people and spent $432 billion, with costs split between the federal government (about 58 percent) and the states (42 percent). The ACA expanded eligibility for Medicaid to people with incomes below 138 percent of the federal poverty line. In 2014, that’s $16,105 for a single adult and $32,913 for a family of four. Earlier federal eligibility requirements were tighter.

In June 2012, the Supreme Court, while upholding most of the ACA, threw out the Medicaid provisions. The court ruled that the Obama administration couldn’t force all states to accept the Medicaid expansion. It had to give them a choice. Ever since, there’s been a running battle between the administration and the states that have declined. The White House report, done by its Council of Economic Advisers (CEA), is the latest salvo.

To the White House, the right-wing anti-Obamacare crusade is mean-spirited partisanship at its worst. The 24 non- participating states are sacrificing huge amounts of almost-free money and condemning an estimated 5.7 million people — who would qualify for the new Medicaid — to being uninsured. (In participating states and the District of Columbia, 5.2 million signed up.) Under the ACA, the federal government pays all the cost of the Medicaid expansion through 2016 and, after that, the reimbursement rate drops gradually to a still-generous 90 percent in 2020.

Through 2016, abstaining states are losing $88 billion in federal funds, estimates the CEA. Meanwhile, many of the needlessly uninsured don’t get routine preventive care and tests. They lack the peace of mind of insurance. They face higher out-of-pocket costs and medical debts.

This critique contains much truth. Obamacare’s politics are hugely symbolic. Opposition — or support — is worn as a badge of honor. Still, two aspects of the White House report suggest opposition to the Medicaid expansion isn’t just rabid partisanship.

One is the assumption that the 90 percent reimbursement rate remains permanently. Why should it? To curb budget deficits, Congress might cut it. “The ACA says what it says. Future Congresses can repeal or modify it,” says Matt Salo of the National Association of Medicaid Directors. Could the favorable reimbursement be bait-and-switch? States’ actual costs could be higher than assumed. Why make a bad problem worse?

Even if this doesn’t happen, demographic trends — also ignored by the White House report — are devastating for states. Medicaid’s cost structure is peculiar. Children and adults under 65 represent three-quarters of beneficiaries but only one-third of costs. The quarter who are aged and disabled represent two-thirds of costs. They are especially sickly and poor.More than 60 percent of nursing home residents have Medicaid.

What this means is that, as the population ages, states’ Medicaid spending will rise inexorably. The competition between nursing homes and home health care — on the one hand — and classroom teachers, higher education, police and other governmental services — on the other — will intensify. Medicaid becomes a vise squeezing other public services or requiring continuous tax increases. More spending goes toward meeting past obligations and not present and future needs. Underfunded state and local pensions compound the effect. States and localities acquire a backward-looking bias.

This has already occurred at the national level, where Social Security, Medicare and (to a lesser extent) Medicaid — programs heavily for the elderly — dominate the federal budget. Other spending is slowly shrinking as a share of the economy. We could minimize this process for states and localities by transferring all Medicaid costs to Washington (or at least the costs of the elderly and disabled). To pay for it, Washington would reduce transportation and education grants to states.

Let Washington mediate among generations. Let states and localities concentrate on their traditional roles of education, public safety and roads. Spare them the swamp of escalating health costs. This is the bargain we need — and probably won’t get.

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