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March 20, 2013

Buy Now, Pay Later for Medicaid Expansion

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“Get Cash Back Now!” Such signs are common in car dealerships. Salesmen always try to heighten the sense of urgency: “Buy today, before the offer expires, and you can get a rebate or a zero percent interest rate on your car loan.”

But there are some things a salesman isn’t likely to tell you. Like how much they’ve marked up the car’s price to cover that rebate. Or the fact that the zero-interest rate lasts only for the first year; after that, it skyrockets.

The administration is using the sort of gimmick to expand the Medicaid program — talking up the near-term gains while masking the long-term pain. Not only are they playing an unfair shell game that hides the true costs of the program; they are making an already troubled program less solvent.

The culprit is the Patient Protection and Affordable Care Act, or Obamacare. It makes millions more Americans eligible for Medicaid coverage. Starting in 2014, the act promises, the federal government will pick up 100 percent of the benefit costs of the expansion for three years. Then federal funding would gradually decline to 90 percent by 2020.

But as the Heritage Foundation’s Nina Owcharenko explains, while states may see some savings when federal funding peaks, over time “in the majority of states, Medicaid spending will accelerate and dwarf any projected uncompensated care savings,” such as those associated with the costs of uninsured emergency room visits. Heritage analyst Edmund F. Haislmaier warns that “governors and state legislators should expect their state’s hospitals and clinics to lobby them for more — not less — state funding to replace cuts in federal [Disproportionate Share Hospital] payments.”

Many states will be left holding a huge Medicaid bill they can’t afford but are obligated to pay. As Medicaid spending takes up an ever-increasing share of state budgets, states will face cutting back spending on other state priorities, such as schools, police and roads, to cover the benefits of the added Medicaid beneficiaries. Or worse, they will raise taxes to cover the spending.

Some states will make out like bandits. According to Heritage Foundation calculations, New York will be a big winner, saving $33.8 billion in Medicaid expenditures from 2014 to 2022. Relatively rich states like New York and nine others, including Connecticut and Massachusetts, with above-level enrollments in Medicaid could transfer existing state program costs to the federal government. But less well-off states — like Alabama and Mississippi — that have kept their Medicaid programs in check will have to spend more, not less.

A Supreme Court ruling last year in essence made the Medicaid expansion optional. But some states can’t seem to resist the lure of a front-loaded deal. Twenty-five states and the District of Columbia have indicated their support for the expansion; 19 so far are opposed. The question now falls to the state legislatures to either go along with the governors or push back on the expansion.

Medicaid is in need of reform, not expansion. Expansion will make states more dependent on Washington, not less. It will fuel federal spending at a time when the country can’t afford it. And as Heritage research shows, it doesn’t address the fact that Medicaid patients have worse access to medical care and poorer outcomes than privately insured patients.

Congress has a chance to stop this awful deal. Eliminating the new federal funding for Medicaid expansion would level the playing field for the states and remove the temptation to expand eligibility beyond what the country or the states can afford.

Many car purchasers have buyer’s remorse once they figure out the true cost of their “deal.” If Congress doesn’t act now and states buy into Medicaid expansion, then that’s exactly how millions of Americans will soon feel.

-Kim R. Holmes, a former assistant secretary of state, is a Distinguished Fellow at The Heritage Foundation.

First appeared in The Washington Times.

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