If States Opt Out Of Medicaid, They Would Increase Costs For The Federal Government

By Igor Volsky on Nov 19th, 2010 at 3:10 pm

Earlier this month, several states — led by Texas Governor Rick Perry (R) — floated the idea of resisting the requirements of the health care law by opting out of the Medicaid program. Relying on a Heritage Foundation study, the states argued that they could save money by sending back million of dollars in Medicaid matching funds and designing more efficient alternatives for covering their poorest residents.
Health care wonks and economists questioned the feasibility of the scheme and this morning, during an appearance on C-SPAN’s Washington Journal, Kaiser Health News reporter Marilyn Werber Serafini explained why it would only increase costs for the federal government:

SERAFINI: There is a proposal out there right now coming out of the Heritage Foundation that talks about one possible option for doing this and under this option he says 40 out of the 50 states would actually come out ahead by dropping all that federal matching funding. [...]
The states would take full responsibly for their long term care, their nursing home coverage and also for helping the folks who are on Medicare the senior citizens who still need help paying their premiums and with cost sharing. But the rest of the folks [below 133% of the poverty line] they qualify for subsidies. They buy private insurance through the exchange and therefore you’re essentially giving them full responsibility to the federal government…. If they did drop out of Medicaid, if these folks did qualify for the subsidies and were turned over to the federal government, it would meet a lot more spending by the federal government.

Watch it:


The federal government would have to spend more and so would the Medicaid population. Even if the poorest residents were eligible for subsidies in the exchanges (which as Serafini points out is debatable), they would have to contribute 2% of their incomes to health insurance and would likely be spending a lot more on health care than if they had stayed in the Medicaid program.
States would also have to stretch their contribution to cover individuals with disabilities and long term care services in the face of rising health care costs. Even if they somehow managed to do that, they would likely be confronted with an uptick in uncompensated care and that would and that — along with the fact that the proposal would take billions out of the state economy that goes to support hospitals and other providers — would ensure a revolt from the provider community. Hospitals and doctors would have to swallow the costs of caring for uninsured individuals who will continue to use the emergency room as their primary source of care.
As former Bush HHS Secretary Gov. Tommy Thompson (R-WI) told the New York Times this morning about Wisconsin’s expanded Medicaid program, “The program is very popular, and I don’t want the Republicans to do things that will damage them in the future.”
Conservatives would be undermining state Medicaid programs and increasing federal government expenditures on health care — which, ironically, is exactly what they say they’re trying to reduce.