States Engaging in Fiscal Madness

Opting out of Medicaid expansion does not save money—it opens a drain.

Henry Aaron is a Senior Fellow in Economic Studies at the Brookings Institution.
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Henry Aaron
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Henry Aaron
March 18, 2014, 5:40 a.m.

I have de­cided to hang out a shingle as a polit­ic­al con­sult­ant. I’ll deal in sure-fire pro­pos­als, ones that voters can­not res­ist, ones that are guar­an­teed to en­hance their pop­ular­ity.

So, here’s my first. I’ll ad­vise elec­ted of­fi­cials to tell voters in their states that they are go­ing to help the pub­lic lose bil­lions of dol­lars that are leg­ally theirs.

I know what you are think­ing: Keep your day job. Ad­vice like this is trans­par­ently crazy. Well, maybe it is. But gov­ernors and le­gis­latures around the na­tion are be­hav­ing as if they didn’t think so. Texas Gov. Rick Perry is telling his con­stitu­ents it will be in their in­terest to forgo bil­lions of dol­lars every year — an es­tim­ated $9.2 bil­lion in 2022. Flor­ida Gov. Rick Scott is telling his con­stitu­ents they should by­pass up to $5 bil­lion in 2022 that will be right­fully theirs. In Vir­gin­ia, the gov­ernor and the state Sen­ate want to ex­pand Medi­caid and pick up as much as $2.8 bil­lion in that year to which the state can eas­ily lay claim, but the House of Del­eg­ates says “no.”

What sort of mad­ness is this? Fisc­al mad­ness, it surely is. But wheth­er it is polit­ic­al mad­ness re­mains to be seen.

What is go­ing on here? The an­swer is that all states have the op­tion of ex­pand­ing Medi­caid. If they do, fed­er­al rev­en­ues will pay for all the cost at first and nev­er less than 90 per­cent. Be­cause res­id­ents of no state pay more than a tiny frac­tion of total na­tion­al taxes, tax­pay­ers in oth­er states will pick up most of the ad­ded cost of Medi­caid ex­pan­sion. In fact, even if state of­fi­cials re­buff the Af­ford­able Care Act’s Medi­caid ex­pan­sion, Texas res­id­ents will have to pay for Medi­caid re­cip­i­ents newly en­rolled in those states that do ex­pand cov­er­age. So even if Texas for­goes ad­di­tion­al pay­ments to its hos­pit­als, phys­i­cians, nurses, nurs­ing homes, and oth­er health-care pro­viders by re­fus­ing to ex­pand Medi­caid, Tex­ans will still have to pay for ad­ded cov­er­age in oth­er states. And, oh yes, some scores of thou­sands of Texas res­id­ents — a dis­pro­por­tion­ate share of whom are black, Latino, and un­in­sured — will be de­prived of care that could re­duce pain, save their lives, and keep them healthy enough to work or go to school.

Where does the es­tim­ate come from that says Texas will be kiss­ing off $9.2 bil­lion by 2022? Simple. That is the es­tim­ated dif­fer­ence between the pay­ments that will flow to Texas if the state ex­pands Medi­caid and the ad­ded taxes that Tex­ans will pay to cov­er their share — 8.6 per­cent of the na­tion­al rev­en­ues that will be needed to pay for the ad­ded spend­ing gen­er­ated by Texas when it ex­pands Medi­caid cov­er­age. One can re­peat the same ex­er­cise for Flor­ida, Vir­gin­ia, and each of the oth­er 20 states that have so far been un­will­ing to ex­pand Medi­caid cov­er­age. That is just what Sherry Glied, a pro­fess­or at New York Uni­versity, did for The Com­mon­wealth Fund.

The arith­met­ic is straight­for­ward. The polit­ics are an­oth­er mat­ter. Turn­ing down bil­lions of dol­lars that will in­crease in­comes, ser­vices, and the health of one’s con­stitu­ents seems de­ranged. It is cer­tainly clear evid­ence, if any re­mains needed, of the fury and teeth-grind­ing frus­tra­tion that Obama­care’s op­pon­ents are ex­per­i­en­cing. It has caused be­ha­vi­or that can only be de­scribed as odd.

If you are still not con­vinced, con­sider the pro­pos­al ad­vanced by a South Car­o­lina le­gis­lat­or to use state rev­en­ues to pay fed­er­al fines im­posed on state res­id­ents who re­fuse to buy health cov­er­age that will, in many cases, be made af­ford­able by tax cred­its paid for by the fed­er­al gov­ern­ment — which is to say, by res­id­ents of oth­er states. If South Car­o­lina simply ex­pan­ded Medi­caid to more of its un­in­sured res­id­ents, the state’s tax­pay­ers would pay less than 1 per­cent of the ad­ded total cost of health care re­form.

As they say in New York, go fig­ure!

Henry Aaron is a seni­or fel­low in eco­nom­ic stud­ies at the Brook­ings In­sti­tu­tion.

HAVE AN OPIN­ION ON POLICY AND CHAN­GING DEMO­GRAPH­ICS? The Next Amer­ica wel­comes op-ed pieces that ex­plore the polit­ic­al, eco­nom­ic and so­cial im­pacts of the pro­found ra­cial and cul­tur­al changes fa­cing our na­tion, par­tic­u­larly rel­ev­ant to edu­ca­tion, eco­nomy, the work­force and health. Email us. Please fol­low us on Twit­ter and Face­book.

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