In 2012, prompted by a U.S. Supreme Court ruling, Barack Obama turned what had been a “gun to the head” of state lawmakers and governors into an act of extraordinary (if reckless) generosity. The then president offered the states “free money” — and lots of it — in return for their support of a central element in the administration’s Affordable Care Act, also known as Obamacare. To make sense of the current debate over repeal and replacement of the controversial health care law, it pays to revisit this history.
As originally written, Obamacare would have forced every state to expand eligibility under Medicaid to able-bodied people making up to 133 percent of the federal poverty level… or face the loss of all federal matching funds (with the federal government historically putting up about $3 for every $2 coming from the states), including federal funds supporting more than 50 million pre-ACA Medicaid enrollees.
While upholding the constitutionality of the Affordable Care Act in a broad sense, the Supreme Court struck down this part of the law. “The financial inducement Congress has chosen is much more than relatively mild encouragement,” Chief Justice John Roberts wrote. “It is a gun to the head.”
The administration then countered by offering to pick up not just 60 percent of the cost of expanding the program, but 100 percent through the first three years (2014, 2015, and 2016), and no less than 90 percent for every year after that.
What a deal! For every dollar of its own money, a state would get nine more dollars from the federal government. No wonder hospital associations, chambers of commerce, and other organizations applauded the move.
But where was all this “free money” from the federal government to come from — if not from higher taxes, or increased borrowing that would eventually have to be either repaid… or repudiated banana-republic style through runaway inflation — at the cost of wiping out both savings and investment. Ask not for whom the bell tolls in that case. It tolls for all of us throughout the 50 states.
The Obama administration was running annual deficits of a trillion dollars a year — and borrowing 40 cents out of every dollar it spent — when it made its commitment to giving away limitless money to states that agreed to expand Medicaid.
In an article that I wrote at the time, I pointed out that this approach to money management was the exact equivalent of “adding $400 of credit card debt for every $1,000 you spend.” I posed the question —
If someone who is sinking deeper and deeper into debt comes to you with an offer of “free money,” you would be best advised to:
A. take the money and run,
B. say thanks but no thanks,
C. call the police.
We now know the answer to that question. So far, 31 states have decided to take the money and run. That number includes all four states (California, Oregon, Hawaii, and Rhode Island) with Democratic control of the executive branch and state legislatures. It also includes ten states with Republican governors and control of state legislature (Arkansas, Arizona, Iowa, Indiana, Kentucky, Michigan, New Hampshire, North Dakota, Ohio, and West Virginia). Sixteen red states — including my home state of Missouri — have refrained from joining in the expansion.
In California, total monthly Medicaid and Children’s Health Insurance Program (CHIP) enrollment jumped from a pre-ACA total of 7.8 million people to 12.3 million — an increase of 66 percent. In the bluegrass but politically red state of Kentucky, enrollment more than doubled — going from 607,000 people pre-ACA to 1.2 million — according to the Henry J. Kaiser Family Foundation.
From 2014 to 2017, total federal spending on Medicaid grew from $299 billion to $389 billion — an increase of 30 percent. By 2020, it is expected to increase to $450 billion, according to Congressional Budget Office estimates. That rate of increase is several times faster than the U.S. economy is growing. And there’s the problem: It is not sustainable.
I cannot predict whether Congress will repeal and replace the health care law. But two things are certain. One is that there will be no “cuts” in Medicaid expenditures that actually decrease overall spending; at most, they will slow the rate of increase in spending. Second, failure to do anything to reform the misnamed Affordable Care Act in a meaningful way can only be catastrophic. Too much “free money” is a one-way ticket to financial ruin.