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Medicaid and the problem of federalism

Medicaid and the problem of federalism

Scott Yenor
January 30, 2015
January 30, 2015

A Congressman Butch Otter, were he in Congress in 2009, would, no doubt in my mind, have voted against Obamacare as a terrible national policy.  He would have opposed the Medicaid expansion component of it as a policy corrosive of limited government and unaffordable.  He would have opposed the setting up of exchanges, the employer mandate, the mandates on what an adequate insurance plan is, and the taxes on “Cadillac” plans and sundry other things.

Today’s topic is the Medicaid expansion, so let us focus on that.  If it was such a terrible policy that a Congressman Otter would have opposed its passage, why might a Gov. Otter welcome such a policy as governor for Idaho?  How can something be bad policy for a nation but good policy for a state?

Let us take a step back to remind ourselves of the original Obamacare approach to Medicaid and how it has been changed by subsequent developments.  Medicaid is an example of our cooperative (that is, our corrupt!) federalism.  States designate certain people (mostly poor children, the disabled, and pregnant women) and services eligible, and the federal government will pay about 70 cents on the dollar to Idaho, for example.  So, Idaho get a dollar's worth of bang for 30 cents.

Obamacare sweetens this deal for the states, covering 100% of the costs for the first few years and then reducing it to “only” 90% in later years in return for a transformation of the program.  This is just about free money for the states.  Obamacare originally “incentivized” states to expand Medicaid to include all people 138% above the poverty line (not just the poor, disabled or pregnant).  States who refused to expand would have all of their Medicaid funding withdrawn.  In NFIB v. Sebelius (the case that affirmed the individual mandate as a tax), 7 justices of the Supreme Court held that Obamacare’s “incentive” amounted to an unconstitutional coercion of state discretion and it allowed states to accept or not accept the expansion without upsetting existing Medicaid funding.  States were free to accept this deal or not.

One can see the incentive to accept the deal right away.  Citizens of states are paying the taxes for (partially and incompletely) fund Medicaid expansion, why not also get the benefit from the taxes?  Rejecting Medicaid expansion is worse than rejecting free money: it appears to be a sucker’s deal, where the American citizens in one state agree to fund Medicaid expansion in other states.  I can also understand how someone who would oppose Medicaid expansion as terrible national policy will accept it as state policy. I almost want to say that that is the intent of the law, to get those who opposed it nationally to accept it locally.  Admirable public figures and free market reformers such as Indiana Gov. Mike Pence have gone along with Medicaid expansion while attempting to reform it in a free market direction.

Will Idaho follow in these footsteps and accept the core deal of free money for greater coverage, perhaps with a modicum of reform that has been approved or waived by the current administration?  The incentives are there to do it. The maneuver room for reform is minimal; the squeezing of providers that accompanies Obamacare’s reimbursement rate controls and other regulations hamstring states that can only tinker while the feds build the welfare state (as the cases of Michigan and Indiana illustrate).

As a national policy, the Medicaid expansion and transformation changes the basis for health care coverage from a “safety net” vision to an entitlement vision; it decreases the incentive to find employment connected to a job; it reimburses at rates significantly below market or Medicare rates, calling into question whether there are enough doctors willing to absorb the expansion and surely transferring costs to those with insurance; Medicaid as a program does little or nothing to improve the health of those who are enrolled in it—it has rightly been called the worst health care system in the world.

Why, as a state, double down on worse than mediocrity?  Why overburden an already overburdened health system?  Why make Idaho a less attractive place for doctors than it is today?  Why erode the incentive to work among our citizenry more?  Why give the poor second or third best when they could get first-rate insurance through a job? Tethering our fiscal future to a deficit-ridden federal government may also not be the best long-term strategy.  These are the issues for our legislators.

Should fiscally sound states such as Idaho, Wisconsin, Indiana, and other mostly red states fund, through their citizens’ national tax dollars, the spendthrift and corrupt Medicaid expanders in New York, Illinois, Washington and Oregon? That the sound states have no recourse to fix this problem is part of the plan.  That sound states are tempted by the siren song of “free” money is part of the plan to expand the welfare state indefinitely.   I hope Idaho resists—I know that Congressman Otter would; I also realize that it is a problem that demands a national solution that reimburses states who reject the deal, that returns to the idea of a safety net, and that reunites the spending and the taxing authority.


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