Hey, Rick Perry, It'd Be Dirt-Cheap to Give More Poor Texans Health Care

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Right now, Republican governors are turning down an offer that no policy maker in their right mind would refuse.

Ever since the Supreme Court gave states permission to opt out of Obamacare's Medicaid expansion, a number of GOP governors have declined to participate under the pretense that it would be wildly expensive. This hardy band of resistors includes Texas's Rick Perry, whose state has the highest fraction of uninsured residents in the country, as well as Florida's Rick Scott, Louisiana's Bobby Jindal, and South Carolina's Nikki Haley, whose states are all tied for fourth on that list. Their justification has always sounded a bit dubious, since the federal government has promised to fund 93 percent of the expansion for a decade, and at least 90 percent of it after that.

Today, the Kaiser Family Foundation released a new report illustrating just what a farce the "It's a budget-buster!" argument truly is. No, growing Medicaid wouldn't be free for places like Texas and Florida. But the expense would be minimal compared to the economic benefits of guaranteeing healthcare to millions and bringing federal tax dollars back within their borders. 

Under Medicaid, the federal government and the states split the bill to provide health coverage for the poor and disabled as well as nursing home care for the elderly. Washington sets the basic ground rules, but each state can choose to broaden the program to cover more residents or keep it narrowly focused on the most truly impoverished families. The health care reform law was designed to cut the number of uninsured Americans in half by widening Medicaid's eligibility requirements across the board, at a price tag of about $1 trillion over ten years. According to Kaiser's new study, the federal government would be on the hook for $952 billion of the total. The states themselves would pay another $76 billion. 

Nine-to-one is a pretty good bargain. After all, the feds cover only about two-thirds of Medicaid's costs today. 

That said, some states clearly win bigger from the expansion than others, and they're not in the South. The top prize may go to New York. The Empire State has spent lavishly on Medicaid in the past, so it won't have to adjust its eligibility rules much at all to qualify for additional federal money. Ultimately, Kaiser predicts the law will shave $33 billion, or 7 percent, off of Albany's 10-year Medicaid obligations, as Washington will end up covering them instead (the other states set up for that sort of a windfall are shown in white on the map below). Vermont and Delaware wouldn't receive as many billions, but would similarly hand over about 11 percent of their costs to the federal government.

Texas, by contrast, would still have to boost its total spending on the program by 3.5 percent if it loosened its eligibility enough to meet Obamacare's standards. So again, for them, the expansion isn't free. 

Kaiser_Medicaid_Expansion_State_by_State_Expenditures.PNG

But there are still good reasons for recalcitrant GOP governors like Perry to go along with it. First and foremost, their Medicaid rolls are probably about to grow no matter what. The health reform law's various provisions, such as the individual mandate, will likely encourage some Americans who already qualify for Medicaid but haven't enrolled to finally sign up. Since these people will be eligible under the old Medicaid rules, they won't be qualify for the generous, nine-to-one federal matching funds Obamacare offers. Collectively, they'll cost state governments $68 billion. Texas alone is looking at a $3.9 billion budget increase as more than half a million enrollees join Medicaid due to the health care reform law's mere existence. 


Kaiser_Medicaid_Expansion_ACA_Or_No_Expansion.PNG

So that's a stick; here's a carrot. Thanks to their huge uninsured populations, these states already spend a boatload of money treating patients who show up in emergency rooms without the means to pay for their care. Kaiser estimates that about 30 percent of those uncompensated medical expenses end up getting paid for by state and local governments now. More people on Medicaid would mean fewer uninsured sick to budget for. As a result, even in the South, the program's expansion would raise government healthcare spending on the poor by no more than 3.1 percent, as shown on the dark blue bars below. 

Kaiser_Medicaid_Expansion_ACA_Regional_Savings.PNG

Let's use Texas again as an example of what that means. In the end, agreeing to the Obamacare expansion would cost the state about $3.9 billion extra over the decade and result in coverage for an additional 1.8 residents. That's about a 2.4 percent increase in what the state would otherwise spend on Medicaid and treating the uninsured once they land in hospitals. That's cheap.  

But there's another way to look at it: value per Texas tax dollar. Rick Perry could say no thanks to the Obamacare expansion, in which case Texas will have to cover about 554,000 new Medicaid participants at a cost of around $7,000 per head. Or it could take more federal money, expand its eligibility rules, and cover about 2.4 million low income residents for about $3,300 a head. In short, the state can pay the retail price for its new Medicaid enrollees, or it can pay the bulk rate.  

There are other benefits that math doesn't capture. The Medicaid expansion means fewer hospitals will eat the partial cost of caring for the uninsured. To use Texas as an example once more, Medicaid would pay an additional $24 billion to Lonestar State hospitals over the decade. That, in turn, could bring down the overall cost of care, since patients with health coverage won't need to subsidize those without. All that, and it would get to reap the benefits of a healthier, presumably more productive workforce, paid for overwhelmingly with tax dollars they'll be sending to Washington no matter what. 

Maybe governors like Perry don't believe in higher spending or a bigger social safety net. But surely they believe on getting a good deal on insuring a large number of their residents, rather than a bad deal on insuring just a few of them. Failing that, they have to believe in retrieving as much of their citizens' tax dollars as they can. Really, that's just fiscal conservatism.

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Jordan Weissmann is a senior associate editor at The Atlantic.

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