Months since the Supreme Court ruling that made the Obamacare Medicaid expansion optional, the state costs associated with expansion still remain highly uncertain—making expansion a dicey course for states and their budgets.
Indeed, states should not lose sight of the fact that the original Medicaid expansion was coercive for a reason. As Nina Owcharenko, director of Heritage’s Center for Health Policy Studies, points out, “The fact that the authors of Obamacare felt the need to threaten states with total defunding tells you that they knew many states would resist expanding their programs—even with 100 percent federal funding.”
States are still weighing their options. Many of them have commissioned studies to project the state costs of expanding. However, all cost estimates reflect the assumptions used to construct them, and using different assumptions can result in estimates varying wildly between (and sometimes within) states.
For instance, Florida Governor Rick Scott (R) released a study that projected that an Obamacare Medicaid expansion would cost his state $26 billion over 10 years. A different Florida study made alternative assumptions, concluding it would cost Florida about $3 billion over 10 years. The major difference between the competing studies is that Scott’s does not assume that the federal government’s enhanced match rate will continue as described in the law.
Scott is right to distrust the federal government. In the Administration’s 2013 budget, the President proposed using a “blended” reimbursement rate for Medicaid. A blended rate could cost states considerably more than the funding levels promised in Obamacare. According to Heritage’s Center for Data Analysis calculation, under the Obamacare rates it would cost the 50 states a total of almost $42 billion from 2014 to 2022, while under one version of a blended rate it would cost states about $120 billion over the same period.
Though White House officials recently said that the Administration no longer supports a blended match rate, states have no guarantee that the federal government—either under this President and Congress or future ones—will maintain Obamacare’s extra Medicaid funding. States simply can’t afford additional Medicaid spending, as it is already unsustainable and crowding out other state budget priorities such as education and transportation.
While 18 states have announced that they plan to expand Medicaid, immense uncertainty remains even in those states. When New Mexico Governor Susana Martinez (R) announced that her state would expand, she used the same breath to cast doubt on the federal government’s commitment to full funding:
I want all of us to remember, Medicaid expansion is a federal government promise. Unfortunately, we know that out-of-control federal spending can create uncertainty for these kinds of programs. If the federal government breaks its promise and begins to cut their reimbursement rate, we will be forced to scale back this expansion.
“Such skepticism is warranted,” Owcharenko says. “Washington has rung up a $16 trillion debt and is running more than $1 trillion in the red annually, even without any of the costs associated with the health-care law. Where will it get the money to make good on this promise? And will future administrations honor this promise, no matter what?”
If New Mexico’s faith in the federal government proves to be the wrong bet, Martinez’s pledge to roll back an existing entitlement would be quite tricky, and it would undoubtedly face opposition from this Administration.
The bottom line is that this is a highly uncertain environment, and states need to be very cautious before putting their taxpayers and other budget priorities at risk.
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