States of Confusion

Medicaid expansion is a critical part of the Affordable Care Act (ACA). Of the approximately 30 million people who are currently uninsured, but will be if the ACA is fully implemented, fully half of them—the poorest half—will be insured through the Medicaid expansion.

Traditional Medicaid is jointly administered by the state and federal governments. The Feds set some basic rules. All children are covered if their family makes less than the federal poverty level. Children under six are covered up to 133% of the poverty line. But the states set the eligibility rules for adults. In most states, if you don't have children, you can't qualify for Medicaid no matter how poor you are. In states like Texas and Louisiana, parents only qualify for Medicaid if they make less than 40% of the federal poverty level—$4850 a year for two parents with a single child. Other states are more generous. Massachusetts, thanks to Romneycare, covers all adults up to 133% of the poverty line. But on the whole, Medicaid as currently implemented is not much of a safety net for the poor. Right now, the federal government pays on average 57% of the cost of traditional Medicaid—between 50% and 75%, depending state eligibility rules.

The ACA expands Medicaid by making everyone—children and adults—eligible for Medicaid if their family income is 133% of the poverty level or lower. This is expensive, so the Feds agreed to pay most of the cost. In 2014, they will pay 100%. This drops to 95% in 2017, and to 90% in 2020. Notice that states that whose current Medicaid eligibility rules are relatively stingy—which tend to be the states with the highest percentage of uninsured citizens—stand to gain more money per capita when from the Medicaid expansion than states whose eligibility rules are generous. Texans will make out like bandits if they accept the money, while Massachusetts residents will get nothing, since they are already covered up to 133% of the poverty line.

This is another example of a little-known source of inequality in our national politics. As I previously pointed out, conservative states—states that are more rural, have a lower median income, and tend to vote Republican—receive more money back from the federal government than they pay in taxes. Liberal states get shortchanged. In fact, you could argue that much of U. S. domestic policy involves a redistribution of income in which the “blue states” subsidize the “red states.” (Note: They're not grateful.)

Enter the Supremes. The ACA required states to implement the Medicaid expansion. If they refused, the federal government threatened to withhold its contribution to traditional Medicare. Chief Justice John Roberts, in National Federation of Independent Business v. Sebelius, ruled that this was coercive, and that the states may opt out of Medicaid expansion. Six Republican governors have already said that they will refuse to comply, and several others are threatening to do so. Here is the map. The chart below it shows that, with the exception of Wisconsin, the states that plan to refuse the Medicaid expansion have a higher percentage of uninsured citizens, or in other words, have more to gain from it. This will not only frustrate the intent of the ACA, but will deny medical help to many of the Americans who need it most.

To make matters worse, some Republican governors have announced that they are exploring the possibility of dropping out of traditional Medicaid as well. They interpret the Supremes' decision to mean that they can opt out of any federal program that requires the states to pay part of the cost. The states' reaction to Medicaid expansion makes it very clear that attempting to implement health care reform at the state level is an exercise in futility.

The usual reason given for why conservatives refuse to expand Medicaid is said to be conservative ideology. This is most charitably described as opposition to big government, but when applied to health care, it sounds suspiciously like an unwillingness to help one's fellow citizens who can't afford medical care, either because they are poor or because their family is struck by catastrophic illness. Are there rational reasons for refusing to expand Medicaid?

• The 5% (in 2017) to 10% (in 2020) of the cost of Medicaid expansion is not exactly pocket change. States may be justifiably worried about the cost.
• The “woodwork effect.” Many Americans who are eligible for Medicaid in their state don't apply for it. They may think it's not worth the trouble. However, the publicity surrounding the Medicaid expansion and the threat of a fine for violating the individual mandate may persuade more eligible people to sign up. The states will then be on the hook for whatever part of the cost they would have had to cover under traditional Medicare.

Many health care policy experts, however, think that the financial logic of expanding Medicaid is strong enough to overcome any resistance due to ideology. Here are some of the points they make.

• Not only will it be difficult for states to turn down “free money,” the citizens of those states that turn down the Medicaid expansion will be paying for it anyway through their federal taxes. Their money will go to other states that have accepted the deal (partially reversing the flow of money from blue states to red).
• As noted above, the states whose governors have been most vocal about opting out of Medicaid expansion are the ones that stand to gain the most from it, since they have a higher percentage of uninsured citizens.
• Uninsured citizens in these states will continue to show up at hospital emergency rooms. Their care will be paid for through cost shifting. Costs are shifted in several ways.
• Some of the cost is paid by those who have health insurance. Their premiums are higher in order to pay the cost of treating people without insurance.
• Part of the cost is paid for through federal, state and local taxes, which provide emergency health care for the poor. The Urban Institute estimated that in 2008, state and local governments spent $10.6 billion dollars providing emergency care for the uninsured. However, beginning in 2014, the federal government will no longer subsidize emergency care, so the burden will fall more heavily on state and local government. This cost alone will probably be greater than the cost to the states of Medicaid expansion.
• Finally, part of the cost is shifted to hospitals through what is called “forced charity”—uncompensated medical care for the uninsured. (Of course, they get some of this money back by charging you or your insurance company $28 for a box of tissues while you're in the hospital.)
• Low income citizens and the public interest groups that represent them will protest the denial of coverage to hundreds of thousands of poor and sick people. However, research at the federal level shows that the attitudes of poor people have either no influence, or a slight negative effect, on public policy. This is probably true at the state level as well, but this remains to be demonstrated.
• Most importantly, hospitals and doctors were expecting to have many more customers due to Medicaid expansion. They've already agreed to reduce their reimbursement rates under the ACA, in anticipation of these higher profits. They're   also not happy about forced charity. Health care providers are powerful lobbying groups who spend a lot of money paying off governors and state legislators. They won't take this loss of revenue lying down.

What will happen? Nothing, until after the election. Given how unpopular the ACA is, anything the Republicans can do to resist it now will probably help them in November. If Romney defeats Obama and the Elephants gain control of the Senate, it's probably all over for health care reform for at least a decade.

If that doesn't happen and the ACA survives, it seems inevitable that all the states will eventually agree to expand Medicaid. However, that will take a long time and a lot of people will die while they're waiting for it to happen.