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The States Can Afford to Expand Medicaid, and the Federal Government Can, Too: Governors Would Be Foolish and Cruel to Opt Out of the Affordable Care Act’s Medicaid Expansion

In my most recent Verdict column, I discussed the part of the Supreme Court’s decision in the Affordable Care Act (ACA) case that struck down the requirement that state governments either accept an expansion of the Medicaid program or lose all federal funding for that program.  My discussion focused on the Court’s faulty legal reasoning, as well as the unusually solicitous notion of coercion that infused the majority’s opinion.

The most immediate effect of the Court’s decision, however, is that it has left it up to each state’s government to decide whether to expand its Medicaid program, or to stand pat with the program as it currently operates.  Almost before the ink was dry on the Court’s ACA decision, Republican governors were lining up to announce that they would definitely or probably refuse to expand their Medicaid programs.  At last count, some 30 of the nation’s governors have joined this chorus—putting access to health care for millions of Americans needlessly at risk.

Before we consider the merits of this question, it is worth pausing to consider the sheer political opportunism of these governors’ announcements.  Recall that, before the Court released its decision in late June, there was virtually no discussion at all about the Medicaid aspect of the case.  Everything revolved around hypotheticals such as whether the federal government could force people to eat broccoli, and other bizarre slippery-slope arguments surrounding the so-called individual mandate.

There was not even a hint of sentiment along the lines of, “and Medicaid matters, too,” in these overheated discussions.  For those who opposed the ACA, Medicaid was not even an afterthought.  Now, however, Republican governors see an opening to show voters that they are eager to earn their conservative stripes, by suddenly claiming that Medicaid’s expansion is the greatest threat to liberty in the nation’s history.

An observer could be forgiven, therefore, if this all seemed a bit pretextual, with Medicaid simply being the preferred weapon du jour with which Republicans have now decided to do battle with President Obama.

Even when politicians are motivated by naked partisanship and personal ambition, however, it is at least possible that they have a valid point.  Is that true here?  Not at all.  The merits of the case weigh overwhelmingly in favor of each state’s joining enthusiastically in the expansion of Medicaid.

In this column, I will discuss why each state should—for both humanitarian reasons, and cold-blooded economic reasons—expand its Medicaid program.  This is true, even though the states face very real financial constraints over the next few years (and perhaps beyond).  Moreover, I will refute conservatives’ claims that the federal government cannot afford to pay its part of the Medicaid expansion.

The simple fact is that the Medicaid expansion provided by the ACA was one of the best parts of that law, and it should not be necessary to debate whether the states should be joining.  That we are doing so is yet more evidence of the poisonous political atmosphere that has enveloped this country ever more tightly since Barack Obama’s ascent to the Presidency.

The Medicaid Expansion Is a Generous Deal for States, and They Will Be Able to Afford the Minimal Cost of Participating

The Medicaid program is actually fifty-one separate state-level Medicaid programs, each one jointly funded by a state’s government, in cooperation with the federal government.  The current costs of the program are divided such that the federal government pays roughly five dollars for every three dollars that a state government contributes.  The programs are administered by the states, under broad rules set by the federal government, granting flexibility to change the rules in response to local needs and conditions.

The expansion of Medicaid was designed to bring large numbers of the poor and near-poor into the program, as part of an effort to end this country’s ongoing shame at being the only major country in the world that has tolerated having millions of its citizens live without access to non-emergency health care.  Medicaid was always designed to help poor people gain access to health insurance, but large numbers of poorer Americans (especially those without children) had fallen between the cracks.

The ACA attempted to change that.  Rather than simply expanding the program under the same rules that govern current Medicaid programs, however, Congress recognized that the states were not in a strong enough financial position to afford their usual share of the program.  Congress thus took on 100% of the cost for the first three years after the expansion will begin, in 2014, and then it set the states’ contributions to rise from zero to 10% over the next several years after that.

The net result, as the research group Citizens for Tax Justice recently explained, is that the federal government will pay 93% of the cost of the Medicaid expansion from 2014-2022, with the states covering only the remaining 7%.  The cost thereafter will rise only to 10% for the states.

Despite this extraordinarily generous formula, conservative governors are screaming about the supposedly unbearable financial burden that the Medicaid expansion will impose on their states.  Fortunately, the numbers show clearly that those claims are simply wrong.

For some states, in fact, the expansion will be a net positive, even in the immediate budgetary sense.  As a recent analysis on the Economix Blog of The New York Times pointed out, a handful of states will actually see decreases in their total Medicaid expenditures after the expansion, essentially because those states are already covering relatively large numbers of poor citizens, and the law will shift the cost of doing so to the federal government.

For those states that will see an increase in their total costs for Medicaid, moreover, the costs are quite small.  Even combining the first six years after the expansion, the total cost for state governments is less than—and, in most cases, much less than—one half of one percent of the state’s annual economic income.  Going forward, the costs on an annual basis would be similarly tiny.

To put this into some perspective, the cost-per-person of the Medicaid expansion in Nebraska (where the governor has been gaining national attention by posturing against the expansion) would be on the order of about ten dollars per year.

Even if the states were forced to increase taxes to fund the Medicaid expansion, therefore, the amounts would be barely noticeable.  Only in a world where even pennies-per-month tax increases are rejected out of hand could this be called “unaffordable.”

Moreover, most states lavish much larger amounts on tax breaks for “economic development” programs that have never even been evaluated for their cost-effectiveness.  The complaining governors have no problem with those giveaways, yet they are willing to continue to deny health care to their poorest citizens, when granting that care would cost only a tiny fraction of the amount necessary to fund those corporate welfare programs.

How Do the States Benefit from Medicaid’s Expansion?  Fortunately, When It Comes to Health Care, To Be Humane Is Also to Be Fiscally Savvy

Of course, cost is only one side of the question.  The point of expanding Medicaid coverage is that doing so will bring real benefits to real people.  One such benefit: reduced instances of death.  As a recent news article in The New York Times reported, researchers at Harvard have recently published a study suggesting that expanding Medicaid coverage is accompanied by reductions in death rates for those who are finally given access to health care.

This is hardly surprising, of course.  There is every reason to expect that people who lack access to preventive health care will become sicker, and that many of them will be beyond hope when and if they finally go to an emergency room.  Even short of death, those who have no access to regular medical care will be sicker, and more prone to contracting other serious diseases.

This is why states will benefit from expanding Medicaid programs.  The cost of emergency rooms, after all, is borne by the rest of us.  The other people in each state indirectly bear the costs of such emergency room care—care that is, we should remember, more expensive than almost any other type of medical care.

Beyond the direct reduction in medical costs, for both state governments and citizens with private insurance, there are also important economic benefits that come from having a healthier population.  Workers who are not chronically ill, and who are able to deal with medical issues in a timely way, are more productive, and they take fewer days of medical leave.  This heightened productivity and this diminished level of leave days improves each state’s economic climate, increasing earnings and thus also increasing state tax revenues.

What About the Federal Government?  Can It Afford to Be So Generous to the States?

Some opponents of the ACA, such as Louisiana Governor Bobby Jindal, have pointed out that the relatively low cost to the states of the Medicaid expansion is only possible because the federal government is picking up the difference.  How, Jindal and others have asked, does that make sense, when the federal government is itself in such dire fiscal straits?

This argument is especially important to confront, because the same political forces that are putting so much pressure on the states to cut spending are exerting the same pressure to do so at the federal level as well.  The result is that the states’ fiscal situations are worse than they need to be, because the federal government more generally is being prevented from saving the states from the worst effects of the Great Recession and its aftermath.

This double bind is deeply harmful to the economic health of the country.  In a recent story on the PBS NewsHour, I said in an interview that the states’ long-term fiscal situations should not be used to justify reductions in spending years down the road, because the economy will surely improve over the next decade, allowing states to collect higher levels of tax revenues, as their business climates strengthen.

Subsequent news articles (for example, here and here), however, seemed to raise doubts about the premise of my argument.  They described a recent report that predicted severe fiscal constraints on state governments that would be continuing years into the future.

The reason for that predicted outcome is, however, quite simple: The study noted that conservative lawmakers nationwide have all but guaranteed that the federal government will reduce its support of state government activities on a permanent basis.

In other words, the future crisis that is described in the report is simply a reflection of the success of anti-government activists in forcing the federal government to pull back on its historic support of state-government activities.

The states’ fiscal woes in the future, therefore, are predicated on the idea that the federal government should not continue to spend “money that it does not have.”  These claims are often combined with the usual political rhetoric about the country supposedly being “in hock to the Chinese,” or “about to become like Greece,” or the all-time favorite, the claim that we are “harming our children and grandchildren by saddling them with debt.”

All of those arguments are, in fact, nonsense, especially in the context of the Medicaid expansion.  As I have argued many times elsewhere (for example, here), the federal government need not—indeed, it should not—cut its spending to the point where its annual budget is in balance.  Doing so has undeniable emotional appeal—after all, citizens who balance their household budgets may think government ought to do the same.  But the federal government’s budget is not like a family’s budget, and good federal financial management requires that the government expand the pool of available debt, preferably by investing in the people of this country.  That is the best way to provide for our children and grandchildren.

And Medicaid is an essential investment in the most vulnerable people of this country.  For the same reasons I described above, in explaining why the states will benefit from a healthier population, the country as a whole gains, as well, when all of its citizens are able to live healthier lives.

To pretend otherwise—to pretend, that is, that “we can’t afford” to provide medical care to people who cannot afford to buy it under our current mess of a health insurance system—is to misunderstand what it means to spend money wisely.

Everyone understands that it is sometimes possible to spend money to make money.  That is what Congress knew, as well, when it expanded Medicaid under the ACA.  Governors should not sacrifice the lives and health of their poorest citizens, based on the false claim that the state and federal governments cannot afford to make people’s lives better.  The fact is, we cannot afford not to spend this money on such an important program.

Neil H. BuchananNeil H. Buchanan, a Justia columnist, is an economist and legal scholar, a Professor of Law at The George Washington University, and a Senior Fellow at the Taxation Law and Policy Research Institute, Monash University (Melbourne, Australia). He blogs at DorfonLaw.org, and he is the author of The Debt Ceiling Disasters: How the Republicans Created an Unnecessary Constitutional Crisis and How the Democrats Can Fight Back.
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