Virginia’s debate over Medicaid expansion offers some interesting lessons for North Carolina

Unlike North Carolina’s top elected officials, Virginia’s governor and lawmakers are debating whether to expand the state’s Medicaid program. Cato Institute budget analyst Nicole Kaeding explains in a Daily Caller column why the answer for Virginia, as in North Carolina, should be no.

The costs of this expansion will be massive. Medicaid is already the largest spending item in state budgets according to the National Association of State Budget Officers. Virginia is no exception. The states spends more on Medicaid than K-12 education. The national program, as it is now, costs the federal government an estimated $250 billion each year, with states spending another $150 billion.

To get states to participate in the expansion, the federal government decided to sweeten the deal for them. For any individual that is newly eligible, the federal government will pay 100 percent of the costs for three years, with the federal contribution eventually falling to 90 percent by 2020 and into perpetuity. CBO estimates that it will cost the federal government $792 billion for the next ten years, with states paying an additional $46 billion. Virginia’s share would be in excess of $1 billion.

Supporters argue this is a great deal for states. They get to provide health insurance for their residents at little to no cost. According analysis by the left-leaning Center for Budget and Policy Priorities, more than 95 percent of the expansion costs would be assumed by the federal government.

While technically correct, the CBPP analysis ignores the fiscal reality of the situation. Almost $800 billion is an enormous sum of money, even for the federal government. The CBO estimates total federal Medicaid spending to top $4.5 trillion, or almost 10 percent of total federal spending, over the next ten years.

It is very likely that Congress changes this provision due to the large strain it places on the federal budget. The administration has also started to change its tune after the Supreme Court ruling made the Medicaid expansion voluntary. The president has twice suggested that Congress decrease the federal reimbursement to states for newly-eligible enrollees. He offered such a deal in 2011 to Speaker Boehner to solve the debt ceiling fight. He also included it as a proposal within his fiscal year 2013 budget proposal. He needs to keep the appearance of honoring its promise to get states to accept the deal.

But when the federal government finally moves to get its fiscal house in order, it will surely cut its share of spending for the newly-eligible population. Even if the federal government only footed 90 percent, instead of 95 percent of the cost, the states’ share would double to almost $90 billion over ten years.

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