The New Louisiana Purchase: Obamacare's $4.3 Billion Boondoggle

Avik S. A. Roy

(Hi everyone. I look forward to getting to know you better. I'm a great admirer of Megan's work and The Atlantic generally.)

Do you remember the "Louisiana Purchase?" I don't mean Thomas Jefferson's acquisition of land from Napoleon, but rather Democrats' acquisition of Sen. Mary Landrieu's (D., La.) support for the Patient Protection and Affordable Care Act. Landrieu, critics believe, pledged her vote in exchange for gaining $200 million additional federal funds for Louisiana's Medicaid program. Except that, due to a drafting error, the law ended up giving Louisiana $4.3 billion in extra Medicaid funds -- more than twenty times the assigned amount. How this happened, and how Congress failed to fully fix it, is a microcosm of our new health law's many flaws.

Our story begins in the fall of 2009, when Sen. Harry Reid (D., Nev.) was trying to cobble together the necessary 60 votes to pass the Affordable Care Act. He needed every Democrat on board in order to do this, which gave waffling senators a great deal of leverage. In the case of Sen. Landrieu, this involved gaining some extra funding for the state's Medicaid program, something that Republican Governor Bobby Jindal also sought (though he opposed its attachment to PPACA).

Medicaid, America's government health-care program for the poor, is jointly funded by the states and the federal government. The federal government chips in at different levels to different states, using a formula called Federal Medical Assistance Percentages, or FMAP. FMAP is determined by several factors, such as a state's per-capita income, and the state's own Medicaid spending. (FMAP has come under a lot of criticism from policy types, who point out that its structure incentivizes state politicians to spend more on Medicaid, knowing that taxpayers in other states will foot most of the bill.) The Medicaid law specifies that the feds will contribute no less than 50 percent of a state's Medicaid costs; the national average prior to the Obama Administration was about 57 percent.

Louisiana had received a ton of additional Medicaid assistance in the aftermath of Hurricane Katrina, and Sen. Landrieu's goal was to continue that assistance, so as to more gradually wean the state off of its additional subsidies.

Section 2006 of PPACA, a "Special Adjustment to FMAP Determination for Certain States Recovering from a Major Disaster," was designed to temporarily increase the federal government's FMAP contribution to Louisiana to the tune of around $200 million. It contains extremely complicated legislative language, whose main purpose is to ensure that only Louisiana benefits from the specified FMAP increase. See if you can make heads or tails out of it:

SEC. 2006. SPECIAL ADJUSTMENT TO FMAP DETERMINATION FOR CERTAIN STATES RECOVERING FROM A MAJOR DISASTER.

Section 1905 of the Social Security Act (42 U.S.C. 1396d), as amended by sections 2001(a)(3) and 2001(b)(2), is amended--

(1) in subsection (b), in the first sentence, by striking ''subsection (y)'' and inserting ''subsections (y) and (aa)''; and

(2) by adding at the end the following new subsection:

''(aa)(1) Notwithstanding subsection (b), beginning January 1, 2011, the Federal medical assistance percentage for a fiscal year for a disaster-recovery FMAP adjustment State shall be equal to the following:

''(A) In the case of the first fiscal year (or part of a fiscal year) for which this subsection applies to the State, the Federal medical assistance percentage determined for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, increased by 50 percent of the number of percentage points by which the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection and subsection (y), is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year after the application of only subsection (a) of section 5001 of Public Law 111-5 (if applicable to the preceding fiscal year) and without regard to this sub- section, subsection (y), and subsections (b) and (c) of section 5001 of Public Law 111-5.

''(B) In the case of the second or any succeeding fiscal year for which this subsection applies to the State, the Federal medical assistance percentage determined for the preceding fiscal year under this subsection for the State, increased by 25 percent of the number of percentage points by which the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year under this subsection.

''(2) In this subsection, the term 'disaster-recovery FMAP adjustment State' means a State that is one of the 50 States or the District of Columbia, for which, at any time during the preceding 7 fiscal years, the President has declared a major disaster under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and determined as a result of such disaster that every county or parish in the State warrant individual and public assistance or public assistance from the Federal Government under such Act and for which--

''(A) in the case of the first fiscal year (or part of a fiscal year) for which this subsection applies to the State, the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year after the application of only subsection (a) of section 5001 of Public Law 111-5 (if applicable to the preceding fiscal year) and without regard to this subsection, subsection (y), and subsections (b) and (c) of section 5001 of Public Law 111-5, by at least 3 percentage points; and

''(B) in the case of the second or any succeeding fiscal year for which this subsection applies to the State, the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year under this subsection by at least 3 percentage points.

''(3) The Federal medical assistance percentage determined for a disaster-recovery FMAP adjustment State under paragraph (1) shall apply for purposes of this title (other than with respect to dis- proportionate share hospital payments described in section 1923 and payments under this title that are based on the enhanced FMAP described in 2105(b)) and shall not apply with respect to payments under title IV (other than under part E of title IV) or payments under title XXI.''.

On March 20, 2010, hours before the final vote on the health care bill in the House of Representatives, the Congressional Budget Office and the Joint Committee on Taxation issued their fiscal scoring of the bill. According to their analysis, the "Louisiana Purchase" would cost $0.1 billion in 2011 and $0.1 billion in 2012, with no additional spending thereafter for a total of $0.2 billion, or approximately $200 million.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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