This week, rising star Republican governors John Kasich of Ohio and Rick Snyder of Michigan became the 5th and 6th GOP state executives to sign onto the Obamacare Medicaid expansion. Florida's Rick Scott, once the most vocal governor opposed to Obamacare, may be next. 19 of 20 Democrat-led states are aboard as West Virginia's Earl Tomblin wavers.
Why is it that good conservatives are expanding a broken system that is rapidly gobbling up their state's budget? The answer goes deeper than Obamacare's initial bribe to fund 100 percent of the expansion populations for the first three years before dropping to 95 percent and then to 90 percent in 2020.
Since 1965, Medicaid has been funded by the FMAP (Federal Medical Assistance Percentages). In 2013, all states get a federal matching rate of between 50 percent and 73 percent based on each state's relative wealth. Fourteen states get a 50 percent match and the poorest state, Mississippi, gets 73 percent. The average is approximately 57 percent. This means that for the average state, for every dollar they spend on Medicaid, they get about $1.40 in "free money" from Washington, DC.
As a result of the FMAP, federal Medicaid spending is like crack to state policymakers. Despite its obvious long-term destruction, the short-term high is virtually impossible to resist. Every other state is doing it and every health care related lobbyist (and therefore campaign contributor) in your state capital -- hospitals, doctors, nurses (all with higher approval ratings than you) -- is egging you on. Their cries are all the same, "It is free money. We would be stupid to leave it on the table." The only countervailing pressure to that sentiment is the distant whisper of a tiny minority of voters who fully understand the perversity of the FMAP and appreciate that the "free money" is still taxpayer dollars. Sadly, that is not a fair fight.
What has been the budgetary effect of this "free money" illusion? According to the Congressional Budget Office, in 1969 the federal government spent $2.3 billion on Medicaid. In 2012, the feds spent $251 billion. That is an annual growth rate of 11.3 percent. No other major government spending program has grown that fast for that long. If you apply that 11.3 percent growth rate to the next 43 years, the federal government would spend nearly $50 trillion on Medicaid just in the year 2055 (with states kicking in an additional $28 trillion at the current 57 percent match rate). Can anyone say, "unsustainable?" Suffice it to say, there is zero chance economic growth will keep pace.
The root cause of this cost explosion is not health care costs, or the poverty rate, whether a state is Republican or Democrat, or whether the sky is blue or green. The root cause is that the FMAP literally rewards higher spending. Even many supposedly conservative governors and state legislators fall prey to its seduction.
The accelerant to that spending bonfire is the attitude expressed by Governor Kasich in his rationalization for Medicaid expansion this week. He wrote that Obamacare, “takes $13 billion of Ohioans’ federal tax dollars out of our state and gives it to other states—where it will go to work helping to rev up some other state’s economy instead of Ohio’s.” When the majority of governors have that view, the feeding frenzy for "free" federal money spirals out of control into financial meltdown.
It must be noted that, despite its massive spending, Medicaid is the lowest payer in the health care system. Private health insurers like Blue Cross, United and Aetna typically pay the most. Medicare is next. Medicaid is at the bottom, which means it is the least popular with doctors. Ask your doctor if he or she wants to see a higher percentage of their patients in Medicaid.
The dual funding streams of the FMAP also do little to promote accountability. The Government Accountability Office has for decades designated Medicaid as being at "high risk" for fraud and abuse. The GAO has authored dozens of reports showing evidence of the rampant fraud and corruption endemic to Medicaid. This week, Chairman of the House Committee on Oversight and Government Reform Darrell Issa released a report documenting massive amounts of fraud in New York state's Medicaid program. The incentive to crack down on theft is minimized when half the money isn't yours.
Give credit to diabolical genius of the liberals who designed the Medicaid financing structure in the 1960s. Their wildest dreams came true. Medicaid is now an all-consuming vortex of a program that is devouring budgets and is on pace to cover 1 in 3 Americans just a few years from now.
We should have heeded the warning of former Maryland Governor, Democrat Marvin Mandel. Upon becoming governor in 1969 and presented with the Medicaid program for his state, Mandel said, "'If you really hate a guy,' my father told me, 'give him a baby elephant as a birthday present. Eventually it will get so goddamned big it will eat you out of house and home and there will be shit all over the place.'" Indeed.