ALEXANDER: Resisting the Medicaid-expansion temptation

Obamacare’s promise of federal funds won’t offset the costs

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Thanks to the Supreme Court’s 2012 ruling, states are no longer required to liberalize Medicaid eligibility, one of the strategies of Obamacare to improve health care access among lower-income Americans.

Yet that doesn’t mean the 25 states that have resisted turning the means-tested welfare program into a default health care plan for working-age, able-bodied Americans face no pressure to do so.

Indeed, a phalanx of welfare-advocacy groups, health care consultants, hospital systems, and managed-care organizations continue to lobby the legislatures of the holdout states.

The pro-expansion forces are not simply downplaying the costs involved. Citing numerous studies and economic projections funded by the health care industry, these well-connected advocates of Medicaid are actually claiming that its expansion represents a fiscal bonanza.

Not only will states gain, we are told, needed federal Medicaid funds, but they will also experience “a more positive net flow of federal dollars” in general, according to a much-touted December report of the Commonwealth Fund.

That’s an argument that most states will find difficult to resist, as their escalating Medicaid expenditures long ago — even before Barack Obama decided to run for the presidency — became their largest single budget line-item, according to data of the National Association of State Budget Officers, outpacing K-12 education.

In a day when governors and legislatures need more resources for priorities that benefit all citizens, such as education and transportation, the promising of a bigger stream of federal revenue may be too enticing to forgo.

Yet a recent economic forecast and risk analysis we conducted for the state of Maine flatly contradicts that glowing assessment, suggesting that the hope of using Medicaid expansion to solve state budget woes is as empty as President Obama’s promise that “if you like your health care plan, you can keep it.”

Ten-year projections made on the basis of current expectations reveal that even if the state were to expand Medicaid eligibility, Maine would continue to experience rising rates of poverty and increases in both median and per-capita income.

Those simultaneous trends may seem counterintuitive, but the patterns were well established before the economic downturn that started in December 2007, and have been documented in other states dating back to 2000.

While the poverty trends by themselves might justify Medicaid expansion, the upward trajectory of per-capita income means that a state like Maine should not count on any anticipated increase in Medicaid reimbursements from the federal government.

That’s because there is little or no statistical correlation between poverty and the Federal Medical Assistance Percentage, the technical measure used to determine federal matching funds for state Medicaid and welfare expenditures. This is because that formula is based on per-capita income relative to other states.

Since poverty rates and per-capita income can and do grow together, as they have in Maine, the state Federal Medical Assistance Percentage rate can decline rapidly, as they have in states such as Texas and Pennsylvania, while a state’s poverty rate increases.

Only in two states, California and Georgia, did our regressions yield statistically strong negative correlations between poverty and income, In 29 states, the negative correlation was moderate or weak, but in 19 states (including Maine), the correlation turned positive, albeit statistically weak or moderate.

The bottom line: Even as the federal government has promised to cover 100 percent of the costs of state Medicaid expansion through 2016, and 90 percent after that date, states may well find that their Federal Medical Assistance Percentage rates will decline, not increase.

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