Side Effects: Obamacare Encourages States to Drop Medicaid

November 10, 2010 5:23 pm

Because of Obamacare, states are considering dropping out of Medicaid, the federal-state health program for the poor, rather than deal with the additional fiscal strain resulting from the health law.

One of the main drivers behind health care reform was to reduce the nation’s number of uninsured.  Under the new law, this will be partially achieved by adding 18 million Americans to the Medicaid program.

This expansion will strain already hurting state budgets.  By expanding a program for which states share the cost, the federal government is able to hide the true cost of the expansion while draining state coffers, at the expense of other state spending priorities.

This cost shift strategy to the states is pushing some states to consider dropping Medicaid altogether. The New York Times reports that Texas is already considering this route. Texas Rep. Warren Chisum (R-District 88) said the state will be restricted in how it can otherwise cut costs. “With Obamacare mandates coming down, we have a situation where we cannot reduce benefits or change eligibility,” he said in the article. “This system is bankrupting our state.”

Heritage insurance expert Ed Haislmaier’s analysis shows that Texas could save $46.5 billion between 2014 and 2019 by dropping acute care coverage and continuing to cover long-term care services with state dollars. Altogether, 40 states and the District of Columbia could achieve net savings by following suit. (Note: The numbers stated above reflect updates to Haislmaier’s research since the health law’s passage.)

State Sen. Jane Nelson (R-District 12) said in the Times article that “dropping out of Medicaid was worth considering—but only if it made fiscal sense without jeopardizing care.”  Starting in 2014, this could be the reality. The new law will then begin offering generous subsidies to all Americans earning less than 400 percent of the federal poverty level to buy insurance in the exchanges.

The subsidies are not available to Americans who are eligible for Medicaid or have access to employer-sponsored insurance. But it’s already clear that the law’s incentives encourage employers to drop health coverage and move employees toward subsidized health plans within the exchange. States have a similar incentive to drop Medicaid: especially if beneficiaries who are no longer eligible for the program would become eligible for subsidies through the exchange.

The loser in this equation is the federal taxpayer. As Haislmaier writes, “[T]he federal government, however, would be left holding a trillion dollar plus tab.” The Medicaid provision is one more example of Congress failing to consider the consequences of a massive overhaul to the health sector. All the more reason for lawmakers to scrap Obamacare and get health care reform right.

By Kathryn Nix of “The Foundry”


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