Will Oklahoma Drop Out of Medicaid?

In The Wall Street Journal, Oklahoma's governor, Mary Fallin, says she'll consider alternatives to expanding Medicaid as required in the new health care law:

Mary Fallin, a Republican elected Oklahoma governor, said she was emboldened by a largely symbolic 65%-35% vote in her state for a measure opposing the individual insurance requirement.

"I think the people of Oklahoma have spoken that they're concerned and they do not support the program of taking over the health-care system," Ms. Fallin said.

She said she was looking at whether Oklahoma can lean on an existing public-private program that provides insurance to the poor as an alternative to the law's Medicaid expansion.

"We certainly will try to minimize the impact the new federal law will have on the state of Oklahoma and certainly on our budget with unfunded mandates," Ms. Fallin said.

Should states opt out of the law's Medicaid expansion, they would have to remove themselves entirely from the Medicaid program—an unlikely outcome.

First, I think it's worth noting that Fallin is taking the symbolic vote against the mandate as encouragement to fight the PPACA at the state level. Critics of the anti-mandate ballot measures, which have now passed in three states, say they're meaningless. And as a matter of legal force, that's probably true. But the ballot measures send signals to politicians, who may be more willing to block or reduce the impact of the health care law as a result.

Second, I agree that dropping out of Medicaid is not a likely outcome. But it could certainly be an interesting experiment. And, according to some estimates, many states may have a strong incentive to pursue the option. Even without the PPACA's expansion, Medicaid remains a troubled, expensive program in desperate need of reform. And Oklahoma has felt its budget buren more than most states recently: Between 2004 and 2007, state spending on the program grew at 9.2 percent, compared with an average growth of just 3.6 percent nationwide. In 2008, the state's Medicaid program cost about $3.5 billion to run. 

The high and rapidly increasing might make dropping out of the program attractive. States could rid themselves of the existing cost of Medicaid as well as the burden of expanding Medicaid, as required by the PPACA. One big problem with dropping out of the program, though, is that it could greatly increase the total cost of the recent health care overhaul. A large number of the individuals who would've been served by Medicaid would end up getting insurance through the insurance exchanges that will go into operation in 2014. That would give them access to federal subsidies. And while state budgets might look healthier, those subsidies could prove far more expensive, overall, than simply continuing on with Medicaid.