Mike Kueber's Blog

November 18, 2012

Rick Perry thumbs his nose at ObamaCare’s Medicaid expansion

Filed under: Issues,Medical,People,Politics — Mike Kueber @ 3:25 pm
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Rick Perry and a lot of Republican governors are back in the news lately because they are declining to participate in two major components of ObamaCare – (1) developing insurance exchanges, and (2) expanding Medicaid.    

Part of the problem with Medicaid is that people don’t have a full understanding of the role it plays in America’s safety net.  Most people believe the major difference between Medicare (healthcare for the elderly) and Medicaid (healthcare for the poor) and is that Medicare is insurance that the beneficiaries have paid for, while Medicaid is welfare that is paid for by general tax revenues.  That is correct, but another oft-overlooked difference is that Medicare covers virtually all of the elderly while Medicaid applies to only a fraction of the poor.  In fact, Medicaid is essentially limited to poor children and their parents.  It does not generally cover poor people without children.  (Incidentally, in 2012 the poverty line (Federal Poverty Level or FPL) for an individual is $11,170; for a family of four, the poverty line it is $23,050.) 

ObamaCare is changing the limited nature of Medicaid in two significant ways – (1) it will apply to all poor people, not just poor people with kids (this will bring in an additional 17 million beneficiaries to Medicaid), and (2) it will extend to people who earn no more than 138% of the poverty line.  That means a family of four can earn more than $30,000.

For families that are more than 138% above the poverty line, ObamaCare provides for them to purchase coverage at an insurance exchange and for this purchase to be subsidized by the federal government if the family earns less than 400% of the poverty line ($45,000 for an individual; $90,000 for a family of four).  The amount of the subsidy is calculated by limiting, on a sliding scale, a family’s cost for the purchase to between 2% and 9% of family income.

The insurance exchanges and the expanded Medicaid are the two most important mechanisms in ObamaCare to insure the heretofore uninsured.  Although the law couldn’t force states to develop insurance exchanges, it warned that the federal government would develop exchanges in those states that declined.  Similarly, the law couldn’t force states to provide the vastly expanded Medicaid, but, in addition to providing generous reimbursement, it threatened to withhold all existing Medicaid funding from those states that declined.

This summer, however, the United State Supreme Court threw a monkey wrench into the ObamaCare design by holding that Congress could not punish states by withholding Medicaid funds if a state declined to participate in expanded Medicaid.  And a bunch of governors in conservative states immediately, with much flourish, declared their opposition.  Texas’s Rick Perry was their leader: 

  • “I will not be party to socializing health care and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government.”

But since President Obama’s re-election, some of the governors are reconsidering their initial rejection of expanded Medicaid because, upon closer examination, the rejection is fiscally irresponsible. ObamaCare promises to reimburse states for 100% of its costs for three years and after that the reimbursement rate will be 90%.  How could a fiscally responsible state turn down a valuable benefit to the poor and near-poor individuals in a state if it only has to pay 10 cents on the dollar?  Not only does it benefit the state’s poor, but it also brings a lot of federal dollars into a state, which will more than make up the state’s 10% cost.

Some state critics of ObamaCare have warned that there is no guarantee that the federal government won’t increase state responsibility in future years (states pay 43% of the costs of existing Medicaid benefits), but that warning doesn’t make sense because states could always discontinue a program if costs start exceeding benefits.  (Political feasibility is another thing.)  Furthermore, the fact that every state already participates voluntarily in the existing Medicaid with a 43% contribution rate suggests that these states would be falling all over themselves to get in an expanded program with only a 0-10% contribution rate.  

ObamaCare proponents have suggested that Perry and the other Republican governors were engaged in pre-election posturing, and will come around post-election.  In a Politico piece, Jennifer Granholm pointed out that Texas has 6.1 million uninsured, and the Medicaid expansion would cover 2 million of them, plus provide the Texas economy with a huge cash infusion of $76 billion for 2014-2019.    

Wow, that’s a lot of money to walk away from.  If I were a betting man, I would bet that Rick Perry is going to come around on this one.

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