The Obama Administration Plays Hardball On Medicaid

When the Supreme Court upheld the Affordable Care Act, it also gave Republican states a gift by saying they could opt out of what may be the ACA's most important part, the dramatic expansion of Medicaid that will give insurance to millions of people who don't now have it. While right now each state decides on eligibility rules—meaning that if you live in a state governed by Republicans, if you make enough to have a roof over your head and give your kids one or two meals a day, you're probably considered too rich for Medicaid and are ineligible—starting in 2014 anyone at up to 133 percent of the federal poverty level will be eligible. That means an individual earning up to $14,856 or a family of four earning up to $30,657 could get Medicaid.

Republican governors and legislatures don't like the Medicaid expansion, which is why nine states—South Dakota, plus the Southern states running from South Carolina through Texas—have said they'll refuse to expand Medicaid (many other states have not yet said whether they'll do it). But some states asked the Obama administration whether they could expand Medicaid a bit—maybe not cover everyone up to 133 percent like the law says, but add a few people to the rolls. And yesterday, the administration said no. It's all or nothing: either you expand Medicaid up to 133 percent, or you get none of the new money. Was that the right thing to do? Well first, let's talk about that money.

These Republican states offer worries about cost as their reason for rejecting the Medicaid expansion. But in truth, it's an incredibly sweet deal for them. Right now, the federal government generally pays half of the cost of Medicaid, with the state picking up the other half. But the federal government will pay 100 percent of the cost of new Medicaid recipients signed up because of the expansion between 2014 and 2016. After that the federal contribution will step down to 90 percent by 2020, where it will stay forever more. So the state gets to insure a whole bunch of its citizens for nothing at first, and eventually for only 10 cents on the dollar. And in return they get reduced costs for uncompensated care, and a healthier, more productive citizenry with more money to spend. Some studies have projected that states will more than make up for their 10 percent contribution with health care savings they'll get from an insured population; that's likely to be particularly true among those states whose Medicaid eligibility standards are currently the stingiest, who not coincidentally have the highest rates of uninsured citizens (and, also not coincidentally, are precisely those states where the Republican leadership is refusing to accept the expansion).

And yet, the most conservative among them won't take the deal. The federal government is saying to the states, Here is a bunch of free money for you to give health insurance to your uninsured poor citizens. And these states are saying, No way! Their justification of budget worries is so unpersuasive that it's impossible to avoid the conclusion that they would rather see people have no insurance, and thus be poorer, sicker, and die sooner, than get Medicaid via Obamacare. It's truly a moral abomination.

By playing a little bit of hardball and not letting states get away with a partial expansion, the administration is betting that before long the states will find all this free money to insure their citizens irresistible. And they may be right. That's what happened when Medicaid was established in 1965; few states signed up at first, but before long they all did. Right now these governments are being pressured by some powerful interests to take the expansion, particularly the hospitals who have to deal with patients with no way to pay their bills. If they expanded Medicaid a little but not fully, that pressure wouldn't be as intense and they could claim they expanded coverage. This way they won't be able to hide behind a partial expansion and claim they did the right thing. Let's hope the administration is right, because millions of Americans' futures depend on it.

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