The Conflicting Incentives And Dangers States Face On Expanding Medicaid

Several days ago, a newly constituted General Assembly Medicaid committee (created through the 2013 appropriations bill) met to begin deliberations on the future of the program in the commonwealth. Specifically, whether to expand it under the provisions of the Affordable Care Act ("Obamacare") and/or what, if any, reforms to insist upon from the federal government in exchange for agreeing to the expansion. Previously, I posted a chart from the Heritage Foundation which illustrates the immense danger to Virginia's finances if the General Assembly agrees to such an expansion. While decisions regarding tens of billions of taxpayer dollars — and hundreds of billions over several years — are complex and entail maximum peril, the basic concepts are readily comprehensible. In this case, the 50 states have the option of the federal government paying for Medicaid in full for two years, but then decreasing its contribution from the third year onward, leaving the states with a massive liability. Already, Medicaid sucks up an enormous amount of Virginia's budget, leaving us short in money for core government services (and which provides many elected officials the basis for increasing taxes to fund those services).

This two year funding has been dubbed by many as "free money" by politicians, left-wing activists and media alike, although it is nothing of the sort. The federal government did not generate the money — it comes from our own federal taxes as well as the greater and greater sums of money the feds borrow to cover the increasingly mammoth federal debt. Since this expansion will divert our current treasury and necessitate more state tax increases to cover core services and still more federal tax increases to cover its increasing (irresponsible) debt, it's anything but free.

The Mercatus Center of George Mason University produced the video below to further explain the choices states have, and the dangers associated with them, in an entertaining and digestible way. It is based on the research of Charles Blahous, a senior research fellow at the Mercatus Center and public trustee for Medicare and Social Security (see bio).

Here's a synopsis of the four-and-a-half-minute video:

Across the country, state governments have been considering whether to expand Medicaid coverage as envisioned by the Affordable Care Act (ACA or "Obamacare").

They must weigh the gains of expanded health benefits for their citizens financed primarily by taxpayers residing elsewhere against the additional costs expansion would pose for their own state budgets that are already strained. The details render the decision a close call for most states.

To help break down what's at stake, a new video — based on a recent study by Mercatus scholar and public trustee for Social Security and Medicare Charles Blahous — reviews the key factors states must consider in this complex decision.

  » How did the Supreme Court decision on the ACA change the calculus on Medicaid for state governments?

  » What might a Medicaid expansion mean for state budgets?

  » Medicaid already absorbs nearly 25% of state budgets.

  »Even without expansion, states' costs are expected to skyrocket by more than 150% over the next decade.

  » Given the current state of federal finances, can governors be confident that the federal government will make all future Medicaid payments now scheduled under law?

More information is available at two articles penned by Mr. Blahous for Mercatus here, where he outlines the conflicting incentives tugging at state decision makers, and here, discussing the many other considerations states must weigh.

Do Virginia and the other 49 states dare take the plunge into Medicaid expansion? A General Assembly Committee currently is examining the idea.