Free Lunches and Medicaid Expansion

An old joke told by economists (that may be some type of oxymoron) tells the story of some potentate who hires a noted economist to teach him all there is to know about economics. The economist after considerable labor produces a weighty tome that is rejected by the potentate as being too long. The economist tries again with a shorter version that is again rejected. This continues until finally the economist produces a single sentence for the potentate that she declares is the entire sum of economic wisdom: There is no such thing as a free lunch.

That wisdom was brought to mind after reading the response of some to the portion of Supreme Courts ruling on the Affordable Care Act that addressed the expansion of Medicaid eligibility. The court ruled that the expansion was large enough to constitute a whole new program so the Federal government could not withhold the Federal match for a state’s existing Medicaid program if the state chose not to participate in the expansion. Some states have announced that they would not participate in the expansion because it would be too costly for their state. Apparently they believe that avoiding the expansion constitutes a free lunch to state taxpayers by avoiding any new costs associated with the expansion.

The irony of that line of thinking is that state taxpayers get no free lunch: any savings in state expenditures for Medicaid could end up costing taxpayers far more in other state and local taxes, higher health care insurance premiums, higher health care costs, and loss of access to care if the state opts not to participate in the expansion.

States will face higher Medicaid expenses under the ACA expansion: although the Federal government pays the majority of the costs of expansion (100 percent of the costs for individuals newly eligible under the Affordable Care Acts expansion for the years 2014 through 2016 and then transitioning down to 90 percent of the costs in 2020 and thereafter) states will see higher Medicaid administrative costs, more enrollees who are currently eligible but not enrolled, changes in Disproportionate Share Hospital (DSH) payments, higher physician fees and other costs. States have generated a variety of estimates of what these costs might be. Florida estimated new costs to the state of $5. 7 billion over 5 years, Texas initially estimated those costs would be over $25 billion over 10 years although they just lowered that estimate to $16 billion. Kansas and Maryland estimated net savings to their Medicaid programs, while Georgia’s estimate is $4.25 billon over 10 years.

These numbers are dwarfed by the declines in uncompensated care costs. In Texas uncompensated care costs if the Texas refuses the expansion would around $150 billion. In Georgia those same costs would be over $36 billion over 10 years. Texas ranks 2nd among states for the largest number of uninsured (California is number 1) while Georgia ranks 6th.

That uncompensated care is currently paid for primarily by state and local taxpayers and by consumers of health care and health insurance. That uncompensated care threatens the financial viability of many Georgia hospitals and other providers and increases costs to all consumers of health care services.

Opting out of the Medicaid expansion also means that taxpayers in states who opt out subsidize care in states that choose the expansion. The irony is that many of the states who have declared they will opt out of the expansion would be net winners as Federal taxpayers. In 2010 over 20% of the country’s uninsured reside in Texas and Florida. A large percentage of Federal money flowing to states under the Medicaid expansion would flow to these two states, yet they both have announced that they would not participate in the expansion.

The actual effect on a state from the Medicaid expansion on the health of the population, increase productivity, economic growth, and lower state costs for education, criminal justice, and welfare costs have not been included in any of this discussion. Those costs are real and substantial. Benefits forgone are just as real as money not spent. In this case state taxpayers pay more when states elect not to invest.

2 comments Add your comment

[...] An old joke told by economists (that may be some type of oxymoron) tells the story of some potentate who hires a noted economist to teach him all there is to know about economics. The economist after considerable labor produces a weighty tome that is rejected by the potentate as being too long. The … See full story … [...]

Ami

October 26th, 2012
12:37 am

Magnificent goods from you, man. About | Wow Cataclysm Fansite I’ve understand your stuff peuoivrs to and you are just extremely great. I actually like what you’ve acquired here, really like what you are saying and the way in which you say it. You make it entertaining and you still care for to keep it sensible. I can not wait to read much more from you. This is really a great About | Wow Cataclysm Fansite informations.