Who’s Afraid of the Medicaid Expansion (and Why)?

Joseph Fishkin

Several Republican governors have now boldly asserted that they will turn down the money for the Medicaid expansion, embracing with gusto the option the Supreme Court gave them with its novel Spending Clause holding.  Should this happen, these governors will make their states’ citizens appreciably poorer, as well as sicker.  But they will have taken a bold stand for the cause.

What cause exactly?  Opponents of the individual mandate flew the flag of liberty: specifically, the liberty not to engage in an unwanted commercial transaction.  This was a recognizable libertarian claim.  Opponents of the Medicaid expansion cannot make any similar claim.  No individual liberty is at stake here.  (Nobody is forced to sign up for Medicaid.)  If there is a great motivating cause here larger than opposing Obamacare—or Obama—then it is states’ rights.  Certainly that is how Texas Governor Rick Perry understands what’s at stake.  (But see below.)

From a Spending Clause point of view, the Republican governors recklessly opposing the Medicaid expansion are in one limited sense doing us all a favor.  They are providing a clear demonstration that this particular exercise of Congress’ spending power (after creative modification by the Court) is not an offer “that no State could refuse.”  After all, multiple governors say they will refuse.  This fact should be filed away for future briefs opposing the perhaps-inevitable future ratcheting down of the definition of coercive federal spending.  Meanwhile, as a thought experiment, suppose the Court’s Spending Clause holding had gone the other way.  I wonder how many of these same governors might have similarly flirted with opting out of the Medicaid expansion even if that had meant opting out of Medicaid entirely.  I am certain that some would have.  For support I point to Governor Perry, who in fact did flirt with opting out of Medicaid entirely, as recently as 2010.  (He got the Heritage Foundation memo, which claimed, wildly implausibly, that “nearly every state would be better off” without Medicaid.)  To be sure, the Court’s Spending Clause holding was important as a signal (in addition to its substance): it greatly raised the political profile of the opt-out option, spurring these governors to play the card they had so publicly been dealt.  But in policy terms, the choice to opt out of the expansion today is such an obviously bad choice that I think it’s fair to say that any state that would seriously consider it probably would also have seriously considered dumping Medicaid full-stop, if that were the only card they had.  (If a state or two does in fact refuse X, does that conclusively refute the claim that X was an offer “that no State could refuse”?)

As a practical matter, there is still plenty of time and plenty of wiggle room for all these states to negotiate compromises with HHS and take the money—perhaps after obtaining face-saving waivers of some sort that could allow them to claim that they bravely faced down those inflexible federal bureaucrats.

The biggest prize in this fight, by far, is Texas.  Texas is set to receive the largest single chunk of federal spending under the Medicaid expansion: $52.5 billion in the period from 2014-2019, according to a relatively conservative estimate from the Kaiser Family Foundation [see the table on page 10 of the report*].  That is considerably more federal money than California will receive; it is more than six times what a state like New York will receive.  That five-year figure, for perspective, is more than half the size of the State of Texas’ annual budget, or 4% of Texas’ annual GDP.  It is just an enormous pile of money.  I published an op-ed over the weekend in the Austin American-Statesman arguing that Texas needs to say "Yes" to the Medicaid expansion.  The rest of this post makes that case in bullet-point format and then asks what it means that the arguments are this lopsided—and yet there still seems to be a live dispute about whether to participate.  Cui bono?

Briefly, here's the argument:

1. As a matter of simple arithmetic, Texas will receive at least $9 of federal money for every $1 it puts into this program, on an ongoing basis in the “out years.”  In the first few years the ratio is even more lopsided, with Texas getting something like $20 for every $1 it puts in.
2. This money will create a tremendous number of jobs—many of them quite good jobs, at hospitals and clinics throughout Texas.  This spending also has a multiplier effect.  It will grow the Texas economy.
3. Even if we refuse to take the federal money, Texans will still be paying, through our federal taxes, for the Medicaid expansion in other states.  Our taxes will go out; the only question is whether we’ll get our share back.
4. The Medicaid expansion will significantly cut the number of uninsured in the state.  This means that some substantial number of Texans who otherwise would die, will live.
5. Even if you don’t care about that, consider who is paying today for the care the uninsured receive and cannot pay for (uncompensated care).  There are two main sources. The first is local and state government.  This money comes from our taxes—often property taxes.  The rest comes from cost-shifting: making those with insurance pay more than what their medical care actually costs.
6. Notice a pattern?  Both of these sources of funding are from you, ordinary Texan.  You are paying for the uninsured.  You will save money as a result of the Medicaid expansion.
7. The state government will also save money over the long term—savings that will partly offset the state’s relatively small share of the cost of this program.
8. Most Medicaid spending in Texas (58%, says the Statesman) goes to the care of the elderly and disabled.  You may think of Medicare as the program for the elderly, but there’s a lot that Medicare doesn’t cover, including most nursing home care.  A good friend of mine who works with a population including a lot of elderly “dual eligible” [Medicaid+Medicare] adults in Austin made this point to me recently: while “Medicaid” may conjure a certain image—poor, possibly non-white single parents, et cetera—actually much of the money goes to old people living on limited incomes, struggling to afford medical care.  Perhaps (sadly) politicians might be less cavalier about cutting this program if they knew who its beneficiaries are.
9. Let’s talk about the arguments for the other side.  First out of the gate, Texas Lieutenant Governor David Dewhurst (who is running for U.S. Senate) argues that the federal payments for the Medicaid expansion will “inevitably end,” leaving Texas holding the bag.  Essentially he is saying that future Congresses might decide to stop paying for Medicaid.  To which the proper response is: yes, in theory this could happen, but only if you and a lot more far-right candidates like you are elected to the Senate.  How is that a good argument for your position?
10. The guy the Statesman got to run an op-ed opposite mine over the weekend argues that Texas should say “no” because Medicaid costs are skyrocketing and yet Medicaid is a terrible program that kills people.  It is true that Medicaid spending is growing, but it’s growing more slowly than private insurance costs; Medicaid has lower administrative costs; and Medicaid is considerably cheaper overall, apples to apples, than private insurance.  As for people on Medicaid being more likely to die than uninsured people, I don’t know for sure why this would be, but my guess would be that people who are sicker overall are more likely to go enroll in Medicaid.  (That strikes me as a more plausible causal story than “giving people health insurance tends to kill them.”)
11. Governor Perry’s main policy argument, in the parts of his letter not given over to refighting the Civil War, is essentially that Medicaid is unaffordable.  That is, even the comparatively small state share of the program is more than Texas can afford.  This is why he flirted with opting out of Medicaid entirely.  However see bullet points 5-7 above, regarding who pays for care for the uninsured.  Unless Perry has a secret plan for how to conjure up the funds for this—and if so he is keeping it a very good secret, as this painful Fox News interview illustrated—Texas can either take the federal money or stick its own citizens with the costs.
12. Both Perry and the guy with the op-ed in point #10 (among others) argue that Medicaid is a “one size fits all” approach “mandated by Washington bureaucrats with little knowledge of the diverse needs of Texas’ dynamic, growing population.”  Supposing that this is true, and that there are efficiencies to be found in tailoring a program to Texas in ways HHS will not allow, it’s going to have to be at least ten times as efficient as Medicaid, or else Texas should have taken the federal money.  That is, our mystery new program has to do at least as well for less than one-tenth the cost (see point 1).  And by the way, how exactly is it that “Texas’ dynamic, growing population” differs from the rest of America?  We don’t need long-term care?  Perhaps we don’t need prescription drugs?  Maybe Texans are special people who never need more than three drugs at any one time?  I have no idea where we are supposed to find differences between Texas and other states that would lead to any large cost savings at all, let alone 90% cost savings.  This is just silliness.

The arguments against the Medicaid expansion are not impressive.  Most of them do not survive even the most minimal, five-seconds-of-thought scrutiny.  In truth they are mostly a bunch of rhetorical phrases strung together—federal bureaucrats, state sovereignty, bloated government spending, one-size-fits-all mandates, you know them all—that when mustered into formation fall somewhere between a bad op-ed and word salad.

So what is going on here?  How is it that we have a live dispute about a policy issue where the arguments are this embarrassingly lopsided?  This is not one of those issues, like ethanol subsidies, where a narrow but powerful lobby is able to win despite the weakness of its arguments for the classic public-choice reason that a small, organized group with a lot to gain beats a disorganized general public with only a little to lose (per person).  Here, if anything, the most powerful narrow interest—hospital systems—favors the Medicaid expansion.  Instead, this seems to be one of those odd cases where ideology or partisanship, by itself, is giving Republican governors a sufficiently powerful reason to seriously consider overriding their states’ obvious economic interests. Here are three possible stories of what is going on here:


 (A) Anti-Obamacare / anti-Obama.  This story is more partisanship than ideology.  The idea is that Obamacare is so terrible that anything associated with it deserves maximum resistance. 

 (B) States’ rights ideology.  (As discussed above, libertarianism won’t get you there—it has to be states’ rights.)  The popular resonance of an ideology of states’ rights today, long after the end of Reconstruction and the demise of Jim Crow, seems more limited than the popular resonance of, say, libertarianism.  Outside of the Tea Party, how many Americans really believe that it matters a lot to make particular decisions at the state level rather than the federal level?  Some, I guess.  Governor Perry thought he could ride that horse all the way to the White House—and although that didn’t work out so well, his states’ rights theme was not his main problem.

 (C) This is the darkest possibility: opposition to universal coverage itself.  Here, the idea is that covering lots of uninsured people is not merely something we don’t especially value—it’s something we actively don’t want, and are willing to pay not to have.  Perhaps because of fears of what will happen if millions of people actually get care who need care (overcrowding, etc.) or perhaps because of deep revulsion at a possibly-irreversible change to the social contract in which access to medical care becomes an element of the social contract, on this view, the stand against the Medicaid expansion is ultimately a stand against universal coverage, full stop.  The reason Perry had no answer to the friendly Fox interviewer asking him for any of his own ideas for covering the uninsured, is, on this dark view, that he actively doesn’t want them to have coverage.  Perhaps they should have to work for it.  (Even if they are in their eighties?  See point 8 above…)


I’m not honestly sure which of these is the right story (or which combination).  To the degree that it is (A), things may die down a bit after the election.  To the degree that it is (B), I guess it’ll keep sputtering along until the South stops rising again.  But to the degree that it it is (C), if Obama is re-elected, perhaps at some point this objection will be laid to rest.  Once we have made the switch to a policy regime in which it is more or less the case that people generally have medical coverage, or can obtain such coverage if they need it, that policy regime will shape the ideological space in which future debates like this one take place.  And then someday, hopefully, Republicans can move on to denouncing Democrats for cutting Medicaid.  It took a long time, but we got there with Medicare.  That’s what progress looks like.


*The print version of my op-ed states that the KFF figures are for 2014 when actually they’re for 2014-2019.  I’m trying to get a correction appended to the story—a trickier proposition with print than it would be on a blog.
Posted 12:59 AM by Joseph Fishkin [link]