The Medicaid Wrecking Ball

If you're still not convinced that Medicaid, in conjunction with rules put in place by last year's health care overhaul, is wrecking state budgets, a reported piece in this morning's Wall Street Journal is here to remind you once again.

For those who've been paying attention, the basic storyline is fairly familiar at this point: The program has grown dramatically since its inception in 1965 thanks in large part to a federal-match structure that encourages ill-considered expansion. Thanks in part to the downturn, enrollment in the program has grown dramatically in recent years while state revenues have fallen. Temporary higher levels of federal funding included for the program included in the stimulus package were originally set to run out last summer, but are now schedule to go away this year. Normally states would respond to the reduced federal funding levels by cutting eligibility levels, but a provision in last year's health care overhaul requires states to keep eligibility levels the same or higher—or risk losing billions in federal funding to implement the overhaul in 2014.

But the article does a good job of underlining the little-noticed fact that although Republicans are complaining about Medicaid the loudest, it's not strictly a Republican problem:

As a result, every one of the country's 29 Republican governors has asked the federal government to waive the requirement, with New Jersey penciling a waiver into its budget. Some states with Democratic governors, including Washington, are also quietly pressing for the change.

"We're asking for cooperation…so that we can work our way through what is a very challenging time for us," Washington Gov. Christine Gregoire said at a meeting of the National Governors Association in Washington this weekend, where curbing Medicaid costs was a top issue.

…Delaware Gov. Jack Markell, a Democrat, may also pursue a waiver to reduce Medicaid eligibility. "We haven't ruled anything particular in or out yet," Mr. Markell said, adding that it has been difficult to rein in Medicaid costs and "the population that qualifies has increased significantly."

Nor is it only a problem in states that have taken an oppositional stance to the program. Indeed, states that passed expensive expansions are arguably in the toughest position, with higher costs that they cannot now easily reduce. Maine, for example, expanded its Medicaid eligibility, building the program into a more expensive and more generous program—but is now restricted in terms of how it can roll back those changes:

Since taking office last month, Maine Gov. Paul LePage, a Republican, has brought his state's Medicaid woes to President Barack Obama, Vice President Joe Biden and Ms. Sebelius.

Maine has among the country's most generous Medicaid standards. Around a quarter of the state's residents are in the program, which costs $2.6 billion a year.

To help cover a nearly $1 billion budget gap, Mr. LePage wants the Obama administration to let Maine drop its standard to match the federal ceiling—a move he says would save the state at least $70 million a year. He says the administration is so far refusing to grant the state an exemption.

The health law allows states that have budget deficits to eliminate certain higher-earning enrollees, though that provision applies only in a narrow amount of cases.

"We are being penalized for being overly generous," said Mr. LePage. "All we are asking for is latitude in how we work our own system."

It's a raw deal for the states: They fund a significant portion of the program (about 43 percent, on average), but despite putting up billions of their own money, they have very little say in how the program gets run.

I looked at how ObamaCare's Medicaid rules would affect the states in the October print edition last year. More on states and the need for Medicaid flexibility here.