Affordable Care Act Medicaid Expansion: Why States Should Opt Out

Although the Supreme Court recently found the individual mandate in President Obama's health care bill to be constitutional, the court's ruling that states can opt out of the Medicaid expansion affects a majority of the expansion of health coverage and plagues the potential reforms in the bill.

Specifically, this expansion includes the federal government paying 100% for those who enroll in Medicaid up to $31,809 for a family of four, or 133% of the federal poverty line, for the first three years and gradually decrease the percentage paid to states thereafter. Estimates indicate that by 2019 this expansion will likely increase the number of Americans on Medicaid by 17 million.

While there may appear to be upfront benefits from this expansion, there are at least 10 states contemplating opting out, and 26 states that previously challenged the expansion in court. Some argue that potential downsides to this action by these states could be large, but keep in mind that these states will continue to get their current federal contributions. However, these states are justified to opt out of this overreach by the federal government and choose what they believe is best for them instead of bureaucrats in Washington, D.C. that do not know the specific characteristics of each state. This knowledge problem outlined by Friedrich Hayek is tantamount to the current debate and I pose questions to address whether a state should opt out of the Medicaid expansion.

One concern is over the cost. Economics Professor John Cochrane addresses this by the following: "Let’s start with the obvious question: Who is going to pay for all this? Someone has to pay for every expanded benefit, whether through higher premiums, higher prices or higher taxes. And tapping 'the rich,' reducing administrative costs or executive pay would just be a drop in the bucket." 

Furthermore, what are the costs of higher tax rates on economic growth? If these tax rates lead to a slower growing economy and fewer individuals employed, will the lack of affordability for these individuals to eat healthy, exercise, or provide other means of self-responsibility impact their health?

In addition, what about the fact that federal, state, and local governments spent about half of the $2.6 trillion on U.S. health care in 2010; therefore, is it the private or public sector that is failing our health care system? Since this amount of involvement masks the true costs of health care and does not allow for a functioning price system for the care patients receive, is more government the answer?

According to the U.S. Census Bureau, 49.9 million individuals were uninsured in 2010. There are other estimates for the number of uninsured, but no matter the number, those that make up the uninsured is key. In particular, what percentages of these individuals are healthy and choose not to purchase insurance, can afford it but choose not to, or cannot afford it? Economically or morally, is the government the best option when it is a significant source of the problem? Is coercing individuals or states through a federal mandate a cure? Just because more people have health insurance, does this mean they will have access to quality, timely care?

If these concerns at the federal and state level are true, would it not be a reasonable conclusion that the substantial costs from fewer doctors providing care for more patients (rationing), a lack of incentive for individuals to care for themselves because someone else is paying the bill (moral hazard), and other opportunity costs lead to a decline in the health of individuals? Therefore, is it possible that the humanitarian approach is not to increase government's involvement in health care but to decrease it? 

There are certainly more concerns to address before states decide to expand Medicaid and reap the additional costs to their taxpayers. These costs do not only include monetary payments, but also the likelihood that fewer choices for individuals and states will reduce the health of everyone. Many of these concerns could be avoided by repealing this health care bill, pass individual parts of the legislation, and remove impediments to the market process. Instead of increasing the bureaucratic nightmare that stifles technological progress and artificially creates higher prices in the health care sector, we should advocate market-based reforms that allow prices to allocate scarce resources efficiently and provide better quality, timely care for all Americans. 

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Vance Ginn

Vance Ginn, Ph.D., is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin, Texas. He can be reached at vginn@texaspolicy.com. Vance has been a PolicyMic contributor since 2011 and has university teaching and public policy experience. Fun fact: Vance is a drummer and once played in a top-rated rock band in Houston, TX.

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