Could Health Care Reform Cause States to Drop Out of Medicaid?

Judging by this new report from the Heritage Foundation, it would certainly give states an incentive to do so (or at least to threaten to do so).

The details are somewhat complex, but the short version is that various provisions in health care reform legislation would impose substantial new Medicaid costs on states. Given that Medicaid, which provides assistance with health care expenses for the very poor, is technically a voluntary program, according to the report's authors, the potential "savings to state budgets are so enormous that failure to leave Medicaid might be viewed as irresponsible on the part of elected state officials."

The idea that the bill's Medicaid expansions might prove trouble is hardly surprising. State governors have already complained loudly about how reform legislation would increase Medicaid burdens in their states, with Tennessee's Democratic Governor Phil Bredesen telling the Washington Post that, though he supports the idea of reform legislation, "nobody's going to put their state into bankruptcy… for it." Bredesen's sentiment isn't that surprising considering Tennessee's recent experience with the budget-busting TennCare, a state-run health care program that aimed for universal coverage but eventually had to drop 170,000 people from its rolls after the state faced bankruptcy.

I certainly think it's possible that state governments could float the possibility of dropping out of Medicaid as a threat to get the federal government to restructure the program in such a way that doesn't put such a large burden on state governments. (Indeed, rumbles from state governments appear to have already caused Senate Majority Leader Harry Reid to modify the Senate's bill in order to be more accommodating to state-level budgetary concerns.) But I'm at least a little skeptical that any would actually follow through and make the drastic move of leaving the program.

No matter what, though, these sorts of reports pile on the evidence to what we already knew: Large-scale reorganizations of our health care system like what we're seeing proposed now are likely to result in all sorts of potentially troublesome unintended consequences.