John Hood has a compelling piece in this week’s National Review, arguing that governors should “Say No to Medicaid Expansion.” Even though Obamacare offers states a 100 percent reimbursement rate for newly eligible enrollees, states are rightly nervous about getting stuck with hidden costs:
1. The funding ratio is scheduled to decline to 90 percent by 2019; moreover, given the state of the federal budget, few but the most credulous observers believe that the feds will abide by their commitments.
2. State Medicaid plans rest on the expectation that not everyone who is eligible for Medicaid will actually claim it. Obamacare’s mandates and other mechanisms, however, are expected to drive up participation rates. No one knows how big that “woodwork effect” might be but especially in many relatively frugal states, it could be very significant.
3. Millions of people who would be eligible under an expanded Medicaid will also be eligible for federal subsidies under Obamacare’s health care “exchanges” (assuming they come into existence), at zero financial risk to state budgets. If you’re a state, what’s not to like?
4. Obamacare imposed a “Maintenance of Effort” requirement, forcing states maintain their existing coverage levels (as a condition of participating in the expanded Medicaid program)—or else, run the risk of losing their entire Medicaid funding. Because Obamacare’s architects assumed that every state would in fact opt for expansion, the law lets the MoE expire in 2014. States that decline to participate in Medicaid’s expansion will be free to hack away at their existing programs and obligations. For many states, that moment can’t come soon enough.
Hood explains why these calculations spell the doom of Obamacare’s grand vision.