States Can Save Taxpayers $609 Billion

(From Wall Street Journal)

As the battle over Medicaid expansion rages in the states, supporters of expansion have dusted off an age-old favorite in making the case for taking federal dollars. They say: If our state doesn’t take the money, those dollars will go to some other state instead.

Happily, in this instance that is not true. When a state declines to expand Medicaid coverage to more people, no other state will receive its share of funds and federal spending declines. Based on figures from the Congressional Budget Office and analysis by the Kaiser Family Foundation, Washington was expected to spend roughly $950 billion expanding Medicaid between 2014 and 2022. Each state that declines to expand Medicaid relieves strain on the overall federal budget for this entitlement.

State governments generally don’t have much of an impact on the federal budget. But there was a gift for fiscally conservative state lawmakers tucked into last summer’s U.S. Supreme Court decision on the Affordable Care Act. In National Federation of Independent Business v. Sebelius, the court ruled that Congress cannot coerce states into expanding Medicaid by threatening to withhold federal dollars for a state’s existing program. This ruling effectively gave state policy makers the unique opportunity to veto hundreds of billions of dollars in new federal spending.

Supporters of Medicaid expansion also say that one state opting out won’t make a difference—that the amount of forgone money is a mere drop in the fiscal bucket. But states joining together to say no to Medicaid expansion will make a significant dent in the federal budget, and many already have.

Using figures compiled by Kaiser and our own research at the state level, the Goldwater Institute estimates that the federal tab for Medicaid expansion has been reduced by more than $424 billion in new federal spending over the next eight years thanks to the 18 states that have already opted out. If the 12 still-undecided states also decide to opt out, there will be an additional $185 billion in savings.

The more than $609 billion in total savings from these 30 states would represent over 50{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f} of the expected federal spending on the Medicaid expansion. A drop in the bucket? That’s more than seven times the $85 billion in 2013 sequester cuts and more than half the projected federal deficit for this fiscal year.

In addition to protecting the federal budget, states that decline to expand their Medicaid coverage will protect their own budgets as well. States such as Arizona that voluntarily expanded their Medicaid programs in the past have faced much higher costs than expected. In 2005 alone, the program originally was projected to cost Arizona $315 million, but the actual cost that year was over $1.3 billion.

The year 2005 wasn’t an anomaly. Arizona’s cost projections for the last expansion, from 2001 until the expansion was frozen in 2011, were off by over 400{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f} each year. It is likely that the expansion proposed under the Affordable Care Act will have similar results for states that choose to expand their Medicaid programs, which Arizona may or may not do in the future.

It is highly unlikely that the federal government will keep its promise to pay for 90{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f} of the cost of covering the health care of new enrollees. The Obama administration has already proposed cutting the funding available to states, including in its proposed budgets for 2011 and 2012.

States would be wise to remember that those who rely on assurances of federal dollars are often chasing fool’s gold. A recent example is the Individuals with Disabilities Education Act, where Congress promised federal funding to the tune of 40{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f} of program costs after 1982 but today funds only 17{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f}.

State policy makers fed up with federal spending finally have a chance to do something about it. Although many governors regularly take to the airwaves to call out Washington for its fiscal profligacy, they will be complicit if they go along with the expansion of Medicaid.

Several governors who are usually proponents of fiscal responsibility—including New Jersey’s Chris Christie, Florida’s Rick Scott, Ohio’s John Kasich and Michigan’s Rick Snyder, among others—are ignoring the cliff on the horizon and stepping on the gas when they should be hitting the brake. With the country running a nearly trillion dollar annual deficit, it is time to make the hard decisions required to balance the books.

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To read more about the Goldwater Institute’s efforts to fight Medicaid expansion, please click here.