Make Congress pay

It's not the state's job to bail out Washington's fiscal train wreck

By Geoffrey Lawrence
  • Wednesday, July 11, 2012

Congress wanted to enact the largest entitlement expansion in American history when it passed the Affordable Care Act (ACA).

That law was designed to offer government-subsidized health insurance to all Americans earning up to four times the poverty level. But, although politicians in Washington were quick to dangle this new freebie to prospective voters, they were loathe to pay for it.

Even in a capitol where politicians habitually slough off the long-term implications of spiraling annual deficits, congressional leaders had little appetite for absorbing the colossal costs of this new entitlement onto federal accounting sheets.

So they tried to bind states, compelling them to shoulder the financial consequences of Washington's actions.

Congress drew up the bill so that slightly more than half of the 30 million new recipients of government-subsidized health insurance get those benefits through a mandatory expansion of state Medicaid programs.  

Medicaid was created by federal legislation in 1965 to provide health care services for especially vulnerable populations. States administer their own Medicaid programs independently and can opt into or out of the program on a voluntary basis, but Congress offers federal matching funds to states that participate. This creates a strong incentive for states to offer Medicaid and, since 1982, when Arizona was the last to establish its program, all states have done so.

While each state structures its Medicaid program somewhat differently, all must comply with certain minimal requirements in order to receive federal matching funds. Generally this means that states must offer full coverage to the elderly and families with children living below the federal poverty line, as well as disabled individuals.

As envisioned by Congress, the ACA would have changed these long-established rules and made states ineligible for any future federal matching funds if they did not agree to a significant loosening of minimal eligibility requirements. The ACA aimed to force states to make all individuals — including able-bodied, single, childless adults — earning up to 133 percent of the federal poverty line eligible for full Medicaid benefits. This change would push 17 million new individuals onto state Medicaid roles, according to the latest estimates from the Congressional Budget Office.

Why did Congress do this?

Although Congress must finance at least half the cost of Medicaid expenses, it was a way to force cash-strapped states to pick up a huge chunk of the tab for Congress' new health insurance entitlement.

This overreaching by Congress should be particularly alarming to state policymakers, since most states have balanced-budget requirements and cannot engage in deficit spending like the federal government. Thus, in order to comply with Congress' new Medicaid mandates, states would have to dramatically slash spending in other areas, such as education or public safety.

As the ACA progressed through the U.S. Senate, concerns over its impact on state budgets eventually culminated in a deal for the federal government to pick up the full cost of insuring the newly eligible Medicaid population for three years — from 2014 to 2016. By 2020, the share of these costs financed by Congress will fall to 90 percent, with a strong likelihood that this contribution will continue to decline in future years toward the standard match rate of just over 50 percent.

Indeed, given the strain that entitlement programs will place on federal budgets in coming decades, it's entirely uncertain what long-term obligations states would assume through the ACA's Medicaid expansion. Using a variety of assumptions about future federal-contribution levels, the Nevada Policy Research Institute has estimated that the costs to state taxpayers in Nevada would range as high as $5.4 billion just in the first decade — even though federal authorities would completely finance the newly eligible population for three of those 10 years.

Fortunately, in last month's Supreme Court decision, Chief Justice John Roberts declared that the Medicaid expansion required by the ACA would effectively compel states to act according to congressional wishes — an unconstitutional overreach of federal power. As a result, states will have the option of financing Congress' newest entitlement scheme or not.

The message that Gov. Brian Sandoval and his peers around the country should send to Congress is clear:

"If you want to create a new entitlement program, then YOU can pay for it!"

The ACA already creates a mechanism to subsidize health insurance for those earning between 133 and 400 percent of the poverty line: the health insurance exchanges.

And Congress could always amend the law so that all those earning less than four times the poverty level who are not Medicaid-eligible could receive exchange subsidies.

But then, even the leftist elite in Washington recognize that's unaffordable.

That's why the entire law should be scrapped in favor of patient-centered reforms that would actually reduce costs and restore the health care industry to a functioning marketplace.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit

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