As the Senate grapples with healthcare reform, one of the biggest points of contention is Obamacare’s expansion of Medicaid. And even as lawmakers debate its merits, Obamacare proponents have renewed calls for Medicaid expansion in the 19 states that have so far rejected it.
Their cause that was seemingly helped by a study released in April. Conducted by Benjamin Sommers and Jonathan Gruber—who infamously said Obamacare passed thanks to “the stupidity of the American voter”—the study concludes that states have not faced increased financial burden from Medicaid expansion.
Nothing could be further from the truth. In fact, the study and a broader assessment of states’ fiscal situations make clear that the 19 states that have rejected expansion made the right decision, and should continue to stand on principle.
For starters, the authors acknowledge Medicaid spending has indeed increased substantially in expansion states—by a total of 11.7 percent. They also find expansion caused a 2.4 percent increase in spending from state funds, which they did not find to be statistically significant.
Maybe not to their academic analysis, but these increases matter in the real world. Recall that to encourage expansion, the first three years of Medicaid expansion were not supposed to cost states anything. Not to mention that a 2.4 percent increase on a program already costing billions of dollars annually—and consuming one out of every five general fund dollars states spend—is enough to create funding gaps in state budgets, necessitating spending cuts or tax increases.
These side effects are also conveniently ignored in the Gruber study. The authors declare triumphantly that “there is no evidence that expansion crowded out funding for other state priorities.” They clearly haven’t looked around at many states.
For example, Oregon, Louisiana, and West Virginia are all currently considering creating gross receipts taxes, which apply to businesses’ total revenues, rather than net income, to help fill budget holes. All three states saw massive increases in Medicaid spending, which will only grow with the states’ share of expansion costs. Even Obamacare proponents in these states have noted the expansion is one of the main reasons the new tax is necessary.
Gross receipts taxes have been described as the worst type of tax because they cause an effect known as tax pyramiding, which leads to higher prices for consumers and drags down economic growth. Despite the economic pitfalls, this harmful tax is on the table for many states desperate to cover their Medicaid costs.
Consider the details in Oregon. Lawmakers proposed a 2.5 percent gross receipts tax that would have raised $6 billion over two years to help cover a “$700 million deficit due to Medicaid”—attributed, in part, to the cost of expansion. Just last month, the state’s budget writers declared Oregon would have to end Medicaid expansion in order to balance the budget, absent a massive tax hike.
Another factor the authors failed to properly address is even if expansion states hadn’t paid one extra cent from 2014 to 2016—when the feds were supposed to cover 100 percent of the new costs—by 2020 they will be responsible for 10 percent of new costs under current law. And with health care reform still possible in Washington, that is subject to change. Therefore, it matters greatly whether Medicaid expansion has cost more than expected for the federal government, since one-tenth of those higher-than-expected costs will soon be inherited by expansion states in three years.
Here, the evidence is clear. The U.S. Department of Health and Human Services found that health care costs for individuals who benefited from Medicaid expansion were 49 percent higher than projected. Combined with enrollment far beyond what was anticipated, the cost of expansion for both the feds and states is far greater than originally estimated and simply unsustainable in the long run.
Perhaps worst of all is the manner in which the authors talk about their findings. Gruber declared “expansion is basically free,” which is not only flippant, but obviously false.
When California enrolled nearly 3 million more people than projected when the state expanded Medicaid, every American bore that cost in higher taxes and a massive increase in the national debt. Other examples abound. Enrollment in every expansion state has vastly exceeded expectations, costing far more than anyone anticipated.
Of course, healthy skepticism should be reserved for a researcher like Gruber who finds “there’s no sort of hidden downside” to a healthcare reform he himself had a hand in crafting. Yet in a sense he is correct—the downsides are not hidden at all. Expansion states have seen the downsides as plain as day. Non-expansion states should continue their principled stand.
Melissa Fausz is the Deputy Director of Policy at Americans for Prosperity.
