As heavy lobbying by the hospital industry intersects with immediate political considerations, a growing number of Republican governors are caving in to Medicaid expansion through President Obama’s healthcare law.
In the process, they are imposing massive and unnecessary financial burdens on taxpayers.
Expanding Medicaid is one of the key ways that Obamacare is seeking to increase the number of insured Americans. As originally written, the law would have stripped existing federal Medicaid funding to any state that didn’t participate. But following a 2012 ruling by the U.S. Supreme Court, states were given the option to refuse the expansion while maintaining existing funding. Instead, they’d only be giving up the smaller pile of federal money that would have gone to the new Medicaid population.
Initially, Republican governors were hesitant to back this massive expansion of government. But with the recent addition of Pennsylvania, nine have now said yes. Meanwhile, GOP governors in Indiana, Utah, Tennessee, and Wyoming have all raised the prospect of doing so.
One reason why Republican executives have caved is that they’re being squeezed from two sides. On one side, liberals have been ferociously attacking any opponents of the expansion as hardhearted and stubborn by falsely portraying the move as free money to provide healthcare to the poor. On the other side, governors are getting heavy pressure from hospital lobbyists.
The issue facing hospitals is that Obamacare imposed cuts on Disproportionate Share Hospital payments, which are sent to hospitals that serve large numbers of low-income patients. The theory behind the cuts was that the expansion of Medicaid would reduce hospitals’ uncompensated healthcare costs. In states that don’t expand Medicaid, however, hospitals will have to absorb the cuts, and they won’t have the offsetting benefit of more federal money through the expansion. So they’re leaning on governors to toss aside fiscal considerations and clean up the problem.
In reality, under Obamacare, the federal government only fully pays for the Medicaid expansion through 2016. After that point, states will have to start paying for a portion of the expansion, eventually covering 10 percent of its cost.
Though that doesn’t seem like a lot, it’s worth keeping in mind that Medicaid is already a major burden on state budgets. In fiscal 2013, before the implementation of Obamacare, nearly one-quarter of total state expenditures went to Medicaid — more than any other spending category, according to the National Association of State Budget Officers. Even if federal contributions to the program are removed from the picture, Medicaid still accounted for 16 percent of state spending, second only to K-12 education.
Even assuming that the federal government follows through on its future commitments – which is by no means certain given its long-term fiscal outlook – incremental growth in Medicaid spending will further strain state budgets.
This, of course, doesn’t account for the burden that Republican governors who choose to expand the program are imposing on federal taxpayers. According to the Congressional Budget Office, the Medicaid expansion will cost nearly $800 billion over the next decade.
One trap that Republican governors have fallen into is negotiating with the Department of Health and Human Services for approval of what they pitch to conservatives as market-friendly versions of Medicaid expansion. But any governor who tries to make such a distinction is either lying to the public or extremely gullible.
Despite the fanfare, HHS isn’t going to allow states to make anything other than minor cosmetic changes to the Medicaid expansion. As Josh Archambault and Nic Horton observed in Forbes, “Of the roughly 24 changes [Pennsylvania Republican Gov. Tom Corbett] asked for, only 3 were granted, but in severely watered down forms.” Yet Corbett took the deal anyway.
Twenty-one states are “not moving forward at this time” with Medicaid expansion, according to a tally by the Kaiser Family Foundation. If their governors and lawmakers resist the pressure of hospital lobbyists and withstand liberals’ public shaming campaign, they will be doing a service to future generations.
