States have ability to drop Medicaid 

After Indiana enacted a law banning Medicaid subsidies for most abortion providers, Centers for Medicare & Medicaid Services administrator Donald Berwick shot back with a letter conveying his official legal disapproval.

The thinly veiled threat was a cutoff of funding for part or all of Indiana’s Medicaid program, unless the tax dollars for Planned Parenthood start flowing again.

Such threats come in a broader context, in which nearly all states are straining under Medicaid’s out-of-control costs. The program is the single largest item in many states’ budgets, and its incredible growth is undermining state investments in education, infrastructure and other priorities.

Medicaid’s funding formula — by which the federal government might match a state’s spending 2-for-1 or better — provides little or no incentive to control costs.

And the multiple strings attached to Medicaid money create many unnecessary costs — a situation that prompted 29 Republican governors to write Congress this week asking for more flexibility.

They have every reason to complain, for the Obamacare law is now making matters worse. It forces states that participate in Medicaid to maintain their current eligibility levels — a provision known as “maintenance of effort.”

New Jersey Gov. Chris Christie has referred to this as an “unfunded mandate.” But Christie is technically wrong. Most states can push back and heap their expenses on the federal Obamacare program by simply opting out of Medicaid.

In December 2009, as Obamacare was being considered in the Senate, Heritage Foundation researchers Dennis Smith and Edmund Haislmaier published a paper pointing out that the health care reform bill, as then constituted, provided 48 of the 50 states with substantial fiscal incentives to end participation in the Medicaid program altogether.

On aggregate, those 48 state governments would save more than $1 trillion over 10 years by quitting the program. The law was changed before final passage, diminishing the magnitude of this incentive, but significant fiscal incentives remain, albeit for just 40 states and with smaller dollar amounts involved.

The reason is that Obamacare requires Medicaid-participant states to enroll income-eligible patients (those making less than 133 percent of poverty) in Medicaid.

They cannot instead push these low-earners into the federally subsidized insurance exchanges that Obamacare creates in 2014 and subsidizes for everyone earning less than 400 percent of poverty.

But a state that drops Medicaid altogether can avoid leaving poor patients in the cold by placing them in the Obamacare exchanges. At a very low cost to the patients (no more than 4 percent of income), they will receive private coverage of what Medicaid calls “acute care.” This would save the states substantially.

States that drop Medicaid would also lose the generous federal match. This is a problem because the Obamacare exchanges will not cover everything. States will not want to leave long-term care uncovered, or leave indigent senior citizens who are enrolled in both Medicare and Medicaid out in the cold.

But in most cases, the states can easily cover these additional expenses and have a tidy sum left over with the savings they reap by dumping acute care into the federal government’s lap.

With his letter to Hoosier lawmakers, Medicare administrator Donald Berwick has sent a clear signal not only to Indiana but to all of the states. If they want to maintain control over their own health care finances and their own budgets, they should just drop out of Medicaid.

And if it survives constitutional scrutiny, Obamacare will provide most of them with the cash they need to do it.

Columnist David Freddoso is The Washington Examiner online opinion editor.

About The Author

David Freddoso

David Freddoso came to the Washington Examiner in June 2009, after serving for nearly two years as a Capitol Hill-based staff reporter for National Review Online. Before writing his New York Times bestselling book, The Case Against Barack Obama, he spent three years assisting Robert Novak, the legendary Washington... more
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