Here’s Why States Can’t Make Money by Expanding Medicaid

Obamacare encourages states to expand significantly the number of their residents dependent on Medicaid, the joint state-federal program for low-income households. It significantly increases federal funding for expanding this dependency. However, the Supreme Court has declared that the states do not have to accept this expansion.

So, the Administration and its allies have been reduced to arguing that expanding Medicaid is sort of a profit center for states that do it. The President’s Council of Economic Advisers has enthused about how many jobs would be created if hold-out states just accepted the federal hand-out. (The Robert Wood Johnson Foundation has recently produced a report that beats a similar drum.)

And yet, despite federal “generosity”, Medicaid continues to devour state budgets. The reason is that they have little ability to control costs in Medicaid. For example, just in July, the federal government commanded state Medicaid programs to cover a full range of autism services under the “early and periodic screening, diagnostic and treatment services” (EPSDT) provision of Obamacare. This makes it likely that Medicaid will have to include Advance Behavioral Analysis (ABA), a labor-intensive therapy that includes positive reinforcement and other ways to cause patients to change behavior.

According to Matt Salo of the National Association of State Medicaid Directors, “The nexus of covering a lot of kids and a fairly unknown condition and treatment for that condition, combined with EPSDT, anytime you get that you get states a bit concerned because there’s very little way to control costs in that arena”.

States which sign up to expand Medicaid dependency under Obamacare are not just signing up for a boatload of federal cash. They are abdicating responsibility for and control of their biggest budget item.

Comments (5)

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  1. bob hertz says:

    Good points. John. A program is not free just because the Feds pay for it.

    However let me make the fine point that most of the new insureds under Medicaid expansion are likely to be relatively healthy working poor adults (especially single men.)

    The cost explosions in Medicaid spending tend to come from the elderly and the disabled. To some extent these cost explosions will happen regardless of what a state does about Medicaid expansion.

  2. Wanda J. Jones says:

    JOHN AND BOB: John is so right. The example of autism is just a start. Here are some additional gaps likely to be mandated programs, with their additive expenses:

    Depressed school children–about 30% of all.
    Senior mental health problems–Huge gap
    Adult homeless–Many untreated mental conditions, drugs, and infectious diseases.
    Discharged prisoners
    “Emancipated” foster children–often victims of abuse and neglect.

    It is so true; when the Feds expand the mandates, they simply expect the costs to be absorbed. The states are crazy if they do more business with the Feds. And providers are crazy if they agree to sign on. THe temporary nature of the subsidies should frighten them, as they are not going to last past the second yaer of the next Presidency. Yet large capital and manpower investments will have to be made.

    For a real life example of an Autism center, see the one at Davis Medical Center in Sacramento; demanded by parents, mandated to the Medical Center by the government. The parents do some fund-raising to help out, but the basic payment stream is still MediCal.

    Wanda Jones,
    San Francisco

    • John R. Graham says:

      Maybe we have blurred the line between health care and special ed? I have read elsewhere about how school districts manipulate Medicaid funding for services provided by the school nurse, which used to be locally funded.

  3. Bob Hertz says:

    For an expert look at Medicaid fraud and overspending, check out the discussion at the Aspen Ideas Festival between Tom Scully and Peter Orzag.

    Scully used to run Medicare, of course.

    His main point seemed to be this:

    - some state governors are opposing the expansion for pretty ugly political reasons. In the South and West especially, they do not want to appear to be on the side of welfare for the poor, any welfare.

    - but in the end the governors are right, regardless of their motives. Medicaid has no controls, in his view.

  4. Frank says:

    Interesting point!

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