To Expand or Not to Expand

In response to Is Obamacare Really All That Bad?:

State governors and legislatures are facing a tough decision on whether to participate in Obamacare’s Medicaid expansion.  There’s a good piece by Chuck Blahous, public trustee for Social Security and Medicare over at Economics21.org:

The decision facing individual states is complex. Setting aside the larger question of whether the ACA’s ambitious coverage expansion is good national policy, several competing factors now bear upon the states’ incentives. These include individual state budget circumstances, the 2012 Supreme Court decision, federal Medicaid financing support levels, the federal government’s own fiscal problems, and interactions between Medicaid and the ACA’s new health exchanges, among many others. Some press coverage has portrayed the current dynamic as a divide between pragmatic governors (choosing to expand) and ideologues (choosing not to). I strongly disagree with that characterization. There are powerful incentives operating against expansion as there are incentives in favor of it; the diversity of state decisions is to be expected even assuming that all governors behave wholly pragmatically.

Some of the considerations Blahous lists:

– States face substantial Medicaid cost increases even before budgeting for the optional coverage expansion

– After the Supreme Court decision, states face a common incentive to decline to cover childless adults with incomes above the FPL under Medicaid.

– Given the difficulty of the decision, state negotiations with the federal government could tip the balance. It is clearly against many states’ fiscal interests to expand Medicaid unless they are given the latitude to implement fundamental structural reforms to slow the growth of its costs.

It’s worty a read.  Though the expansion is optional, there are lots of factors in place where many governors will feel forced to participate because the budgetary reality of Obamacare has their hands tied.