The Difficult Policy Choices of ObamaCare’s Medicaid Expansion

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Florida Governor Rick Scott’s
decision to participate in ObamaCare’s Medicaid expansion reveals
the tough politics of that choice: Scott is not only a Republican
but a vocal critic of the health law who spent millions of his own
money opposing its passage and vowed that his state never
participate in any part of it. Yet last month, after facing
pressure from hospital groups and others, he decided to go ahead
with an expansion of Medicaid under the law anyway. But now he’s
getting pushback on that decision: committees in both houses of the
Florida legislature have either
delayed or rejected his Medicaid proposal.
But it’s more than tough politics. It’s also tough policy. A new

paper from Charles Blahous, one of Medicare and Medicaid’s
public trustees and a senior research fellow at the Mercatus
Center, sheds light on some of the difficult choices that states
face in deciding whether or not to expand Medicaid.
Backers of the law have argued that the decision to expand
Medicaid should be a no-brainer: The federal government, after all,
is paying for 100 percent of the expansion through 2016, and then
declining 90 percent by 2020. It’s free money, the argument goes.
Why would states turn it down?
For one thing, expanding Medicaid isn’t cost free to states—even
during the initial years when the federal government is paying for
100 percent of the cost of the coverage expansion. One reason is
what’s known as the “woodwork effect”: Yes, the federal government
will initially pay 100 percent of the cost of covering the
newly eligible. But there are millions of Americans who
were already eligible for Medicaid programs before ObamaCare
passed—and yet weren’t enrolled. Thanks to the mandate and the
enrollment push, many of those people will become covered following
the expansion. And states will have to cover the tab for all of the
previously eligible.
More broadly, even if the cost of participating in the expansion
is low, it has to be considered in the context of the substantial
increase in Medicaid spending that’s projected over the next few
years—and the already high share of state budgets the program
accounts for. As Blahous
points out, the cost of Medicaid is equal to an average of
about 24 percent of state budgets, and the bipartisan ;State
Budget Crisis Task Force ;has warned that it is already
“crowding out other needs.”

The Centers for Medicare and Medicaid Services, meanwhile,
currently expects the state portion of the cost of Medicaid to grow
by 158 percent over the next decade, should all states opt in to
the expansion.

The federal government will be spending a lot more too. Here’s
what that looks like:

The cost of the expansion also has to be considered in the
context of the overall federal financial trajectory, which,
needless to say, isn’t good. “Given the current state of federal
finances,” Blahous argues, “it is unrealistic to assume that the
federal government will make all future Medicaid payments now
scheduled under law.” Shifting more costs to the states in the
future, he says, is “virtually assured.”
You can already see this on the horizon. The
Obama administration has implicitly admitted that the program’s
costs are going to have to be reduced somehow: For the last few
years, it’s been fighting a legal battle to ensure that states
have an absolute right to cut the program’s reimbursement rates as
low as they wish. The Obama administration’s
position is that “there is no general mandate under Medicaid to
reimburse providers for all or substantially all of their costs.”
This is in the health program that notoriously pays the lowest
reimbursement rates in the nation.
For states, it’s the medium to long-term fiscal picture that
presents the biggest worry. The long-term politics of federal
budgeting make short-term state policy choices rather dicey: Who
knows what Congress will do as the cost of government health
programs rise and the already bad budget situation grows worse?
Cost shifting to states may not be inevitable, but it’s quite
likely, which means that even if expanding Medicaid is
essentially free now, it almost certainly won’t be in the
future. ;

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The Difficult Policy Choices of ObamaCare’s Medicaid Expansion

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