ObamaCare's Medicaid Expansion and the Myth of 'Free' Federal Money

When the Supreme Court ruled in June that states could decline to participate in ObamaCare's Medicaid expansion, the White House dismissed the idea that any state would actually choose this option. But earlier this week, Texas' Republican Governor, Rick Perry became the sixth state governor to announce that his administration would not participate in ObamaCare's Medicaid expansion. I suspect he won't be the last. In addition to the six states that have already indicated they won't participate, a handful of others are leaning toward saying no

This has resulted in a lot of predictable grumbling and head scratching. The federal government will pay for a full 100 percent of newly eligible Medicaid beneficiaries for the first three years of the expansion, and 90 percent of the cost after that. "When it comes to Medicaid, the states don't appear to be on the hook for very much money," according to a report at NPR. Sarah Kliff at The Washington Post describes the Medicaid expansion this way: "States get loads of free money to pay their residents’ health-care bills." What state would be so stupid as to turn down free money? 

Maybe because it's not free? Indeed, according to Matt Salo of the National Association of State Budget Directors, the idea that the money is somehow free is "a big lie." Not only do states have to pick up some of the technical costs of administering the Medicaid expansion, including setting up the databases and computer networks to coordinate Medicaid with any state health exchange, they're also responsible for new enrollees who already qualify for benefits but have yet to take them.

That's because the law only provides 100 percent funding for the "newly eligible." Right now, however, there are an estimated 10-12 million individuals who qualify for Medicaid benefits but aren't enrolled. As a result of the expansion and the law's health andate, many of those individuals are expected to enroll. As I noted back in my 2010 magazine feature on state-driven resistance to ObamaCare, this is known as the "woodwork effect," and it could cost states a bundle—as much as $12 billion by 2020. 

And that's in addition to the costs incurred starting in 2017 when the federal government will no longer pay for 100 percent of the newly eligible. Even though the federal government will still be paying 90 percent of the cost for those individuals, the state share will add a substantial burden to many state budgets. Indiana, Florida, California, and North Dakota are all looking at more than a billion dollars in total extra Medicaid costs between 2014, when the expansion is scheduled to kick in, and 2020. Texas alone would face an estimated $27 billion in addition costs by 2023. 

The fiscal burden of Medicaid, already the largest budget item in many states, is only part of the issue. Doctors are also wary of the program as well, and in Texas and other states, they are increasingly refusing to participate. According to a Sunday Associated Press report

Only 31 percent of Texas doctors said they were accepting new patients who rely on Medicaid, the health insurance program for the poor and disabled, in the survey provided to The Associated Press on Sunday. In 2010, the last time the survey was taken, 42 percent of doctors accepted new Medicaid patients. In 2000, that number was 67 percent.

In addition, most states operate their Medicaid programs under one or more waivers, and those waivers have to be approved by the administration. Much of the waiver approval process happens behind closed doors, but it's likely that at least some states will use the threat of opting out as leverage in waiver negotiations.

In the long term, most and perhaps all states may end up participating in the Medicaid expansion, possibly after negotiating for waivers that allow them to participate on more preferable terms. But in the meantime, any states that do choose to opt out will provide useful comparisons with states that chose to participate, and allow us to see whether free federal Medicaid money is actually such a great deal for state budgets. 

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • NoVAHockey||

    "and 90 percent of the cost after that"

    under current law. nothing to keep them from altering the deal.

  • Auric Demonocles||

    Prayer?

  • LTC(ret) John||

    Pray? As in:

    Darth Vader: Calrissian. Take the princess and the Wookie to my ship.

    Lando: You said they'd be left at the city under my supervision.

    Darth Vader: I am altering the deal. Pray I don't alter it any further.

  • Auric Demonocles||

    The fact that you went so explicit disgusts me.

  • Contrarian P||

    And you must ride this unicycle and answer to Mary.

  • Peter Suderman||

    That's correct. Although it's possible that the SCOTUS decision could make it harder for the feds to change the terms of the deal, because it basically says that Medicaid operates like a contract between Washington and the states, and Washington is limited in terms of how it can change the terms of the contract after a state signs on.

  • R C Dean||

    Plus, la Sebelius announced today that there would be no penalties for uninsured low-income residents in states that opt-out of Medicaid.

    By my count, it looks like Texas will have (1) no Medicaid expansion (2) no state exchange, and (3) no (low-income) individual penalties for not having insurance. With a federal exchange, Texas also won’t have (4) individual subsidies for insurance or (5) employer penalties for not offering coverage.

    I don’t see any reason to expect more private insurance in Texas under ObamaCare. Its possible that the federal exchange (and the lack of penalties), will induce some employers to drop coverage, so Texas could well see less private insurance.

    ObamaCare, as drafted and modified by SCOTUS, looks like it will result in an increase in the uninsured population. All for the cost of hundreds of billions of dollars! Hope! Change!

  • Auric Demonocles||

    That sounds more like cash than change.

  • Juice||

    But it's really easy to blame it on those ignorant rednecks in Texas. Point to Rick Perry and everyone believes it.

  • Brett L||

    This has been explicitly true from the beginning. It was never about expanding private insurance. It was about "we tried and failed! Universal Healthcare is the only answer!"

  • Palin's Buttplug||

    If laborers in Texas cannot afford to live there they will leave then.

  • John||

    No they will stay there because that is where there job is.

  • #||

    #4 is only a technicality that HHS has basically already said they are going to just ignore.

  • Dylan||

    What about the fact that the federal government gets its money from the citizens of states?

  • Palin's Buttplug||

    Citizens should consider that when voting for Governor.

    I live in Georgia. We elected a corrupt bankrupt former House member (Deal) because the locals love Jeebuz.

  • John||

    I live in Maryland where they elect crooks because they worship the state.

  • Adam330||

    When did China become a state?

  • John||

    Moe lives somewhere near me. You see him around town in a Mini covered in question marks. He wears the suit wherever he goes. He is never out of character.

  • Palin's Buttplug||

    Fine. States may opt out. What is the problem here?

  • Bi-Curious George||

    "What is the problem here?"

    The fact that you post here.

  • R C Dean||

    See me @ 2:55 pm.

  • Dylan||

    No they can't opt out. They still have to pay federal income taxes.

  • mr simple||

    Has Batman been called to stop this nefarious Riddler plot?

  • Ken Shultz||

    Right now, however, there are an estimated 10-12 million individuals who qualify for Medicaid benefits but aren't enrolled. As a result of the expansion and the law's health andate, many of those individuals are expected to enroll.

    Not sure I understand.

    Everybody who doesn't have health insurance is bleeding to death in the street!

    It's unpossible for any human being to survive without either health insurance or being on a government program of some kind for more than a few hours.

    P.S. It's a good thing we have EBT cards, too; otherwise, millions of Americans would starve to death.

    That's why it's unpossible for there to be any Americans who qualify for an EBT card--but don't have one.

    Either that or they're just letting their children starve to death becasue they believe what they see on Faux news.

  • some guy||

    Right now, however, there are an estimated 10-12 million individuals who qualify for Medicaid benefits but aren't enrolled.

    I wonder what fraction of these aren't enrolled for each of the following reasons: no health problems, ignorance of program eligibility, sense of personal responsibility.

  • Ken Shultz||

    For whatever reason it is, it's their choice.

    At least it used to be a few weeks ago.

  • some guy||

    Agreed. I'll wager damn near all of them fall into categories 1 or 2. If you really do have a sense of personal responsibility you probably also work hard enough to buy insurance.

    Still, I could see some true tough luck cases refusing the handout on principle.

  • R C Dean||

    You left one out:

    (1) illegal immigration status.

  • Ken Shultz||

    Do they give Medicaid to illegal aliens?

    I thought the illegal aliens mostly went to the ER and then, even if they were admitted through the ER, just never bothered to pay.

  • Ken Shultz||

    Incidentally?

    I'm not convinced that the federal government shouldn't pay for illegal aliens.

    After all, if immigration is a federal responsibility, why should private hospitals or even states be forced to eat the costs of what is, after all, a federal responsibility.

  • Spoonman.||

    Parkland Hospital, Dallas's county hospital (also the location of Kennedy's death and about 40 births a day) used to send bills to the Feds for all the care it did for illegal immigrants.

    The Fed's didn't pay them, but Parkland tried.

  • ||

    You know, that makes me like Parkland a little more.

  • Ken Shultz||

    The state of California sued to get the federal government to pay for all the illegal alien inmates, as I recall, once, too.

    For whatever reason, it doesn't work that way. It probably should, though. It would have been fundamentally unfair to say that the states can't enforce immigration laws but then the states have to suffer the consequences of the federal government not enforcing them, too.

    I'm an open borders guy, myself, but some portion of the hatred against illegal immigrants would dissipate if people in border states didn't feel like they were being forced to pay for something that really isn't their responsibility. Hospitals, prisons, schools...

    Oh, and if the federal government had to pick up the costs of illegal immigration, as sure as the sun will rise tomorrow, they'd be a lot more interested in keeping illegal immigrants out, too.

  • some guy||

    The states should just bus all their illegal inmates up to DC and drop them off on the National Mall. Problem solved.

  • R C Dean||

    Hell, I remember Parkland billing Mexico for the illegals.

    Mexico didn't pay either.

  • R C Dean||

    Do they give Medicaid to illegal aliens?

    Well, they're not supposed to, but if you've got good enough fake ID, you can get Medicaid.

  • NoVAHockey||

    don't most states allow self-declaration? no ID required, just a signature?

  • Emmerson Biggins||

    Wait .... An ID?

    Do you think Medicare is run by the KKK or something?

    Only racists asks for ID. It is known.

  • Scarcity||

    The horribly low Medicaid reimbursement rates are the ticking bomb in this law. Doctors see Medicaid patients as charity because reimbursement is far below cost, and I think something like 30-50% of what other insurance (including Medicare) pay. As stated in the article, MOST MDs are not accepting new Medicaid patients, and the ones who are do not have capacity to take on all the newly eligible. So there are 2 options:

    1) The newly eligible find themselves with coverage in name only, care rationed to the point of near-nonexistence for many, or

    2) Annual "doc fixes" like we have now, but on an even larger scale. As in, annual, 12-figure, un-budgeted, completely foreseeable "emergency spending."

  • Palin's Buttplug||

    Agree. Medicaid patients are about to be shown the ice floe.

  • Scarcity||

    So you agree it was disingenuous to pass this law while recognizing this completely foreseeable consequence, and amoral to do so without recognizing either the law's impotence or it's true cost?

  • Palin's Buttplug||

    Possible. Nudge.

  • Scarcity||

    Huh?

  • Contrarian P||

    Yeah, we're such rat bastards for actually wanting to get paid more than cost for treating patients.

  • Ken Shultz||

    Right now, however, there are an estimated 10-12 million individuals who qualify for Medicaid benefits but aren't enrolled. As a result of the expansion and the law's health andate, many of those individuals are expected to enroll.

    I guess that's what the individual mandate is all about?

    The Obama Administration can't tolerate people who qualify for government assistance--but don't want it.

    We'll see if they're singing a different tune once Obama sics the IRS on them. How you like me now?

    How dare they refuse Obama in the first palce? Refusing public assistance like that?

    They should be ashamed of themselves!

  • Ken Shultz||

    That's why progressives are America's most horrible people.

  • Palin's Buttplug||

    Ken, I forget, which socialist health program do you benefit from again?

    It was veterans or old folk perhaps?

  • Auric Demonocles||

    Veterans benefits wouldn't be socialist. It would be his employer providing him with some sweet retirement benefits.

  • Ken Shultz||

    I'm neither a veteran nor an old folk.

    I do have a preexisting condition and a ridiculously expensive prescription, so I guess ObamaCare was all meant to help me, right?

    I'd rather move to Mexico than take government assistance. And, actually, I've moved to Mexico in the past, in part, because the quality of the health care is so high and the cost of care is so low.

    If health insurance becomes available to me in 2014, I might buy a policy if the price comes down low enough--but the chances of the price going down lower than the cost of me self-insuring is really, really low.

  • Sevo||

    Palin's Buttplug|7.11.12 @ 3:34PM|#
    "Ken, I forget, which socialist health program do you benefit from again?"

    Shriek, I forget. Are you an ignoramus or an idiot?

  • IceTrey||

    I have a question. In effect, the Obama mandate is a tax on not consuming regulated privately provided health insurance in the United States. So what kind of a tax is the mandate? Income, excise or direct? As far as I can tell it's not income or excise and if it's direct it's unconstitutional.

  • Auric Demonocles||

    I think they'll claim it's income since the size of it partially depends on your income, and the IRS can't get it if you don't file anyway.

  • T o n y||

    "What state would be so stupid as to [...]?"

    The answer is always Texas.

  • Auric Demonocles||

    ...save it's residents billions?

  • T o n y||

    Because nongovernment healthcare is free!

  • ||

    Because government healthcare is free?

  • Mr. FIFY||

    There's no such thing as a free government lunch.

  • T o n y||

    Nope. But rejecting Medicaid funds doesn't mean Texas residents will stop having healthcare costs.

  • Mr. FIFY||

    And Obamacare won't mean Texan residents will live in a glorious workers' paradise, either.

  • T o n y||

    Which is fine since nobody has ever made that claim. You struggle with gray areas. I think I've told you that before.

  • Mr. FIFY||

    Sure, Tony. Keep telling yourself it's all about the good of the people, and *not* about the workers' paradise. Or the power given to your Team leaders.

  • ||

    Nobody said it would.

    Nice strawman, are they on sale at the local farmers market or something?

  • Scarcity||

    [...] while on the verge of bankruptcy, break ground on a shiny new high-speed rail line?

  • ||

    Thanks for bringing your particular brand of shit to the conversation asshole.

    We missed you on the Stossel post (not).

  • T o n y||

    Been busy. Stab in the dark, does Stossel apply a Pakled-esque simplemindedness to an issue he doesn't remotely understand?

  • Mr. FIFY||

    What stops you from bringing the simplemindedness, Tony?

  • ||

    Nice obscure star trek reference. I actually had to google that.

    Golf clap.

  • Gilbert Martin||

    "Maybe because it's not free? Indeed, according to Matt Salo of the National Association of State Budget Directors, the idea that the money is somehow free is "a big lie." Not only do states have to pick up some of the technical costs of administering the Medicaid expansion, including setting up the databases and computer networks to coordinate Medicaid with any state health exchange, they're also responsible for new enrollees who already qualify for benefits but have yet to take them."

    Yeah - also "federal" money comes from people paying federal taxes who live in those states and their federal taxes will ultimately have to increase to pay for the Medicaid expansion.

  • TomD||

    ... the Myth of 'Free' Federal Money

    Alas, it's not a myth to everyone:

    http://www.cleveland.com/consu.....weeps.html

  • Mr. FIFY||

    Well, lookee here:

    http://www.examiner.com/articl.....nvestments

    Debbie Wasserman had offshore money. Did it create [JOBS]?

  • R C Dean||

    On Medicaid, here's an observation from the field:

    Indigent folks who don't have Medicaid use less services than indigent folks who do, thus imposing less cost on the provider end of the system (and no cost on the MA program).

    It appears that merely signing somebody up for MA increases their utilization of the system. Given the low reimbursement rates for MA, it is not at all clear to us that a safety net health system will actually be better off, net/net, under the MA expansion.

    Hypothetical example:

    Somebody without MA might come into the ER once a year, and we would write off their $1200 bill. Our net loss on that person: $1200. State costs: $0.

    If the sign up for MA, they will consume more services. Say they come in to the ER twice, and we get paid (generously) 25% of our cost. We show income of $600, but we spent $2400, for a net loss of $1800, more than we would have lost if they didn't have MA and came in only once.

    And, of course, the State now has costs of $600, not $0.

    Everybody loses, except the person who has been trained by the state to feel entitled to free medical care, of course.

  • Scarcity||

    The response to this would be that the person with coverage would now be more likely to seek preventative care, causing his ailments to be treated for less cost.

    But depending on reimbursement rates, and particularly how efficiently the newly insured use the care they aren't paying for (I'm gonna go out on a limb and guess "not very"), then your point still stands.

  • Contrarian P||

    Bullshit. Preventative care does not drive down cost. This is a myth and is not supported by any research, in fact it's the opposite. Preventative care does result in less morbidity and mortality, but the medications and doctor visits that result cost more, in aggregate, than simply treating a patient who presents with an end stage disease. While I'm all for preventative care as a physician, it's for reasons of patient health, not because it costs less. It doesn't.

  • Scarcity||

    Here's a perverse possibility: Texas chooses not to expand Medicaid, all its neighbors do. In neighboring states it becomes effectively impossible for the newly eligible to find a doctor who takes Medicaid, and the previously eligible now face obscene wait times.

    The pre-ACA eligible population moves to Texas, where they can still see an MD on a reasonable wait.

    Backdoor expansion with no Fed reimbursement.

  • Carly EngageAmerica||

    The ACA will not control costs. The Affordable Care Act is relying on dozens of pilot programs and demonstration projects to find better ways of delivering care, the results of which have been disappointing. Further, we will still be left with a system in which no one will be choosing between health care and other uses of money. And if no one is making those choices, health care spending will keep rising in the future with all the relentless persistence it has shown in the past (http://go.cms.gov/KuroN5).

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement