Medicaid and the States After the ACA Case: A Few Thoughts on the Politics of State Opt-Outs, and Some Optimism About Journalistic Standards

-- Posted by Neil H. Buchanan

Note to readers: There is a good chance that I will appear in a segment on the PBS NewsHour later this week, discussing Medicaid. If that happens, I will provide a link on this blog to the segment. In the meantime, I will offer a few thoughts here on the Medicaid issue, followed by a few reactions to my interactions with the NewsHour's journalists.

The only part of the Affordable Care Act that was struck down in last week's highly anticipated Supreme Court case was that law's attempt to have states make an all-or-nothing choice about participating in the Medicaid program: either agree to expand the Medicaid program to cover nearly everyone who is poor and near-poor, or lose all federal Medicaid funds for a state's existing Medicaid program.

The cost-benefit calculation by a state would -- if Congress's system had been approved -- be rather simple. The expansion would have been paid for in its entirety by the federal government for the first three years (2014-16), with the 100% federal contribution phased down to 90% over the following three years, so that from 2020 onward, the states would carry 10% of the cost of the expansion. As a matter of comparison, states currently pay on average 43% of Medicaid costs, with the Federal government picking up the remaining 57%.

I continue to agree with Professor Dorf's argument that the Court (by an inexplicable 7-2 majority) simply blew the call on Medicaid. The Court had to conjure up a new-versus-old distinction that had never existed before, finding undue coercion in a federal offer that was only remarkable for its extreme generosity to the states, not some unusually punitive scheme. Nevertheless, the world will move forward under the Court's ruling, and now the states have the choice of opting out of the expansion (just as they have always had the choice of opting out of "old Medicaid.")

By "opting out," however, what are we really talking about? Again, every state is currently running a Medicaid program, more than half of which is paid for by the federal government. Current rules allow many poor people (especially those without children) not to be covered, and most near-poor not to be covered. The Medicaid expansion would make all of those people eligible for coverage. So, if a state says, "We don't want this federal money," it will be saying that it refuses to participate in a plan that would expand minimal health insurance coverage to the state's share of about 17 million extremely vulnerable people nationwide. Indeed, of all of the uninsured people in the country, this group -- with chronic health problems, frequently with little access to nutritious foods, and with a high likelihood of ending up as indigent patients in emergency rooms -- is the most in need of coverage.

Why would a state not want to participate? As the New York Times reported on Saturday, a very predictable response to the Court's ruling has been the parade of Republican governors announcing that they will not allow their states to participate in Medicaid's expansion, for the stated reason that they cannot afford it. Various governors and their spokespeople are quoted in the article as saying that the expansion of Medicaid would inexorably cause either taxes to rise, or education funding to be cut, or whatever.

The funding issue was the focus of most of my interview with the NewsHour people. I offered a couple of reasons that I am more than a bit skeptical of the dissenting governors' claims. First, these are the "usual suspects," in the sense that they are the ones who refused (or, in some cases, initially threatened to refuse) 100% federal contributions to transportation programs, as well as federal stimulus funds. Their arguments about not being able to afford up to a 10% contribution, 8 years from now, for what ought to be an extremely high priority (both as a humanitarian matter, and as a matter of sound economics), therefore sound more than a bit pretextual.

Second, the financial claims themselves are implausible. These governors are crying poverty, pointing to their states' terrible fiscal situations as evidence that they cannot afford a single penny of additional responsibilities. What they are not acknowledging is that the current fiscal situation will not continue, and certainly should no longer be happening in 2020. The Great Recession's aftermath has been longer and much worse than anyone expected, but it cannot continue. And as I put it during the interview, if it does continue, we are going to have much bigger problems than worrying about states being able to afford the 10% contribution to a partial expansion of the Medicaid program.

The dissenting governors' argument, then, boils down to saying that they cannot afford to accept 100% funding to help vulnerable people receive health care for three years, and between 90-100% for the next three years, because their budgets have temporarily been put out of balance by the worst economic situation since the Great Depression. These governors also conveniently ignore the fact that their states' economies -- and therefore their state governments' budgets -- are already strained by the uninsured. Uninsured people end up costing the states more, when their long-ignored illnesses finally worsen to the point where hospitalization is necessary. These people -- most of whom are currently working, which is why they are currently near-poor, not poor -- are also paying taxes (especially state sales taxes, which are highly regressive), and when their illnesses stop them from working, the state governments' finances take a big hit.

(I am not, obviously, offering any numbers here to back up my claims. But neither are these governors and their spokespeople -- other than numbers about current budget shortfalls, which are irrelevant. While I remain open to convincing evidence, nothing that we currently know suggests that there is anything other than pure political bluster behind these governors' claims of being reluctant bearers of hard news.)

In short, the idea that states "can't afford" to sign up for Medicaid is partisan politics masquerading as fiscal analysis. But is it not true that Medicaid is getting more expensive for the states, constituting ever larger shares of their budgets? Absolutely. That, however, is a consequence of unchecked rises in health care costs in general, and it will continue to affect the existing Medicaid programs run by each state (just as it will affect the federal Medicare program, as well as private health insurance programs). As I have argued many times, if health care costs continue to rise at their current rate, the economy will ultimately be swallowed up by the health care sector. Again, if that happens, we will have much bigger problems to worry about.

The closest one can get to a decent argument for opting out, then, is the concern that a small future responsibility for the Medicaid expansion will be impossible to afford, because health care costs in general might make spending on the current Medicaid program so big that even the states' small contribution to the expansion is out of the question.

If that is true, however, then why are the states doing anything but putting money into rainy day funds, to cover future Medicaid-induced shortfalls? Surely, as a matter of probability, the discounted cost of a partial expansion of Medicaid, at a state's contribution rate of 10%, is smaller than, say, the enormous current (and ongoing) annual costs of "economic development grants" to corporations (read: tax subsidies), which most states have not even bothered to evaluate on a cost-benefit basis (and which most independent analysts have concluded are pure giveaways).

In light of my blog post last Friday, in which I decried the current state of journalism, I should also note that my experience with the NewsHour's journalists was enough to restore one's faith in journalistic standards. The reporter and the producer were well-informed, specializing in the health care beat, and they asked good, probing follow-up questions. It is true that they were about to head off to one of the many DC-based Koch-financed think-tanks to film an economist telling them that the states absolutely cannot afford the Medicaid expansion -- perhaps confirming the caricature of modern journalism as a "two sides to every story" game. ("One side says the sun will rise in the East tomorrow, while the other says it won't. Objectivity requires us to report both views as mere opinions.") Yet there was reason to believe that they might not present the story in the form of "Professor Buchanan the Liberal said X, while Mr. Smith the Conservative said not-X." Interviewing people with different points of view does not require treating them as equally plausible. We will see.

Of course, these particular journalists are also dependent upon federal money. A tiny amount of federal money, but federal money nonetheless. The political movement that wants governors to opt out of Medicaid is the same movement that has tried to justify zeroing out the minuscule budgets of PBS and NPR, justifying such cuts as money-saving measures. If ever there were a need for a clear-eyed analysis of what really counts as costs and benefits of a government program, there is very good reason to suspect that non-corporate-funded journalism would be a very good candidate.