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The Reasons States Are Rejecting Obama’s Medicaid Expansion

by Benjamin Domenech on July 9, 2012

Over the past week, we’ve heard from a wide variety of liberal sources amazed at the idea that states would reject the billions in “free money” from the federal government to expand their Medicaid programs under President Barack Obama’s health care law. Indeed, the federal matching rate for the expansion – which covers people at 100 to 138 percent of the federal poverty level (FPL) – is quite generous, set at 100 percent federal tax money for 2014–2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and beyond.

Seems pretty tempting, doesn’t it? Former head of Medicare and Medicaid Don Berwick found the idea any state would turn it down inconceivable. Of course, this inconceivable possibility has now become inevitable, with many states already announcing they will not accept the Medicaid dollars, including seven states which have said a flat “no”. The map above shows you which direction your state is leaning.

Why would a state reject this money? One reason is that the current estimates, which the New York Times recently highlighted, don’t pass muster with the states. These numbers are derived from Kaiser’s initial May 2010 report on the expansion, which went through state by state results. You’ll notice they cut off the assessment at 2019, not 2020, coincidentally the year before the total state responsibility hits 10 percent, as it would be in out years. But these figures are in conflict with many of the calculations arrived at by state officials – an update of this 2011 report is in order summarizing their views. And states are inclined to trust their own estimates.

Consider the case of Texas for one example of why states are pausing. As Ezra Klein points out , “Texas covers only working adults up to 26 percent of the poverty line.” Texas, along with about half the country, has a Medicaid program that is minimal compared to states like New York and others. You can see the rankings of income eligibility for low-income adults here (it’s more generous to kids, but you’ll note you have to go through 26 – mostly red – states to get above 70 percent of FPL).

And this is a key problem for the states. While the federal money is indeed generous for the newly eligible population, it is less so for the rest. For your currently eligible population, you only have the regular Medicaid matching rate, which ranges from 50 to 76 percent. For Texas, it’s around 60 percent. Kaiser calculates that over the first five years of the program, 95.7 percent of the funding will come from the federal government, and not the state. But the state doesn’t agree – they understand that one of every four Texans currently eligible for the program isn’t signed up, and that for this population, they’ll only have a match of around 60 percent. As the report linked above notes, “The Texas Health and Human Services Commission estimated that Texas alone will be forced to spend $27 billion – more than the program’s entire annual budget today.”

That’s one reason Texas Gov. Rick Perry is rejecting the expansion, with gusto. So are Florida’s Rick Scott, Wisconsin’s Scott Walker, Louisiana’s Bobby Jindal, Kansas’ Sam Brownback, South Carolina’s Nikki Haley. It may also include Missouri’s Jay Nixon – one of several Democrat governors currently shaky on the issue.

In sum: the Medicaid expansion is far less attractive to those states with minimal programs, where already eligible people will likely come out of the woodwork to sign on to the system, driving up the costs for the state itself. This has already been proven true in Minnesota, which expanded its program early. The same is expected to be true in numerous other states, adding up to a huge chunk of change for states that already have Medicaid programs overburdened thanks to the recession and doctors who cannot see all the patients.

As Dennis Smith, head of Wisconsin’s Medicaid program, writes here:

Those who support expanding Medicaid insist that a state cannot pass up “free” federal money or that if we don’t expand, the money will go to another state. This is the kind of thinking that got us into the deficit and debt troubles we are in. First, there is no such thing as “free” federal money. The federal government has no money of its own and it gets the money it spends from the same people the state government does. Regardless of who the tax collector is, the impact on the taxpayer is the same. Second, Wisconsin won’t “lose” Medicaid dollars to other states as some argue because each state gets its share of federal Medicaid funding regardless of what happens in another state. Finally, hospitals, doctors, and other health care professionals would receive higher payments under the new tax credits that will be used to purchase private insurance rather than under Medicaid.

The administration should expect states to continue to reject this expansion for this reason, and one more too: because smart governors understand that by rejecting, they obtain leverage over Washington in negotiations, far more than if they had accepted the money with the strings attached. And these governors know that once you add new people to the system, you will never get them out of it.

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