ObamaCare and Medicaid ... The Real Story

This week the Supreme Court is hearing arguments about the constitutionality of the Affordable Care Act, aka ObamaCare. It is expected to render its decision in June.

Most of the attention has been centered around the individual mandate's constitutionality and the authority of government to in effect require younger people to buy health insurance.

But today let's discuss Medicaid and the broader implications of such costly federal-state "voluntary" programs.

My conclusion about the financial effects is the following: These participative federal-state programs, including Medicaid, always cost much more than initially projected, waste enormous amounts of taxpayer money and their stated voluntary nature is a sham. States realistically have no choice--they're in effect forced to participate on the terms dictated by the federal government.

ObamaCare's Flawed Economic Foundations says this about the law's "voluntary" program with respect to states expanding Medicaid eligibility and benefits:

"Consider also the health law's expansion of Medicaid. . . . an expenditure of federal funds is unconstitutional when it coerces states rather than encouraging them to participate in a federal policy. And coercion is the essence of ObamaCare's Medicaid provisions.

ObamaCare transforms Medicaid from a health-care program for impoverished and special-needs groups such as the disabled, into a mandatory federal entitlement—effectively obligatory on both the states and beneficiaries alike—that reaches even working adults whose incomes fall well above the poverty level.

The states are in no realistic position to say no. Consider what would happen if the states had declined to take federal Medicaid funds in 2009. Making up the difference to pay for their own Medicaid patients would mean increasing their budgets by 22.5%. Expressed another way, federal Medicaid spending represents an even more imposing 34.4% of taxes collected by the states nationwide. If states withdrew from Medicaid, the rise in uncompensated care would drive many providers out of business. . . .

The individual mandate and Medicaid expansions appear to many to be unconstitutional. They are certainly bad economic policy. . . . The administration built an intricate, balanced policy on a flawed economic foundation."

States Get Medicaid Rules is another timely article about the Medicaid issue:

"The Medicaid expansion . . . calls for adding 17 million or more additional people to the Medicaid program in the next decade. The plaintiffs, who include attorneys general and governors from 26 states, contend the federal government is forcing them to take on expensive new responsibilities that they can't afford. . . .

Medicaid allows states to set up their own systems to provide health care for the poor, under rules set by the federal government and supplemented by state laws. The federal government usually matches every dollar a state spends on the program with another dollar, and sometimes more. Most states currently only cover poor families with children.

Supporters of the health-care law point out that the federal government will pick up 100% of the costs of the Medicaid expansion for the first few years after 2014, and 90% after that. They also say states are free to leave the program if they choose, and that states can't take federal money for Medicaid and ignore rules for how it can be spent.

Opponents of the law say that, with increasing pressure on state budgets, of which Medicaid is usually the largest share, even that 10% contribution could be too much to bear. They say states can't truly exit from the program entirely because they have come to depend on it. . . .

On average, the federal government contributes about 56% of the money for Medicaid, and the states pay the remaining 44%, experts say. All 50 states participate, with Arizona being the last to join, in 1982. None has left the program, though some have threatened to do so.

The states in the lawsuit, led by Florida, argue the federal government is intruding on states' autonomy by requiring them to cooperate with the new Medicaid expansion or risk losing all federal dollars for their existing programs. They say the federal government is using its spending powers to coerce them into implementing the overhaul.

Tim Jost, a professor of health law at Washington and Lee University, said a federal court had never struck down a statute on the grounds that it was illegally coercive, and noted that previous expansions of the Medicaid program had gone unchallenged by the states."

Discussion and Analysis

In my view, the Supreme Court may or may not overturn ObamaCare. It's too close to call.

That said, we'll continue to hope for the best while preparing for the worst. But now let's discuss the broader implications of federal "coercion" of states and what this means to taxpayers.

Medicaid financing is roughly a 50/50 spending split between the national and state governments. To receive the federal government's 50 cents, individual states have to accept the conditions stipulated by the federal government.

And if a state should ever choose not to agree to the federal conditions, that state won't get the 50 cents, even though in all likelihood it will continue to spend its own 50 cents to assist those in need. In addition, the state's citizens' tax bills won't change.

In other words, the feds will give the state 50 cents or nothing to assist that state financially in meeting the needs of its poor, including many nursing home patients as well. However, that state's taxpayers will have to continue to pay the same amount of federal taxes, no matter what the state "chooses" to do.

As a practical matter, this is pure and simple coercion. The state has no choice at all.

So the state proceeds to spend more money than it otherwise would, and its taxpayers get the bill. The bill to the state's taxpayers effectively totals $1, representing both state and federal spending on Medicaid, since the feds have no money of their own.

So are the Medicaid rules, both old and new, coercive? Of course they are.

Are they wasteful? Of course they are.

Will future costs be higher than estimated? Of course they will.

The newest Medicaid expansion under ObamaCare specifies that the federal government will pick up 100% of the costs the first few years and 90% thereafter. But the federal government has no money of its own. And when the actual costs end up being higher than predicted, we taxpayers will pay the bill. That's how the "system" works.

Will this expensive silliness ever end? Well, let's hope the Supreme Court surprises us and embraces again the idea of a federalist system of representative but limited government.

In any event, We the People will always have the last say. Through the ballot box, if nowhere else.

In America, the court of public opinion is the court that matters most.

Thanks. Bob.