Why play ball?

New unfunded federal Medicaid mandate could spell trouble

By Geoffrey Lawrence
  • Thursday, January 7, 2010

Health care reform legislation recently ushered through the U.S. Senate by Harry Reid could significantly damage the fiscal health of Nevada. H.R. 3590, the Patient Protection and Affordable Care Act, would impose an unfunded mandate that would require higher spending by state taxpayers in order to achieve a congressional policy objective of expanding the expensive and wasteful Medicaid program.

Spending on health and human services — including primarily Medicaid and SCHIP — is already the State of Nevada's second-largest expenditure category behind education. In the 2009-11 biennium, 29.4 percent of state General Fund spending is allocated in that direction. According to Health Care Financing and Policy Division Administrator Charles Duarte, spending specifically on Medicaid currently amounts to $1.5 billion annually in Nevada, with $450 million coming from the state's General Fund.

Yet, Harry Reid and his colleagues in the U.S. Senate believe that Nevada should be obligated to pay even more in order to finance a federal policy objective on which they are not willing to spend federal tax dollars. H.R. 3590 attempts to extend health insurance to many of the currently uninsured by, among other measures, dramatically loosening the eligibility requirements for Medicaid. The bill would require states to make any individual earning less than 133 percent of the federal poverty line eligible for Medicaid coverage.

Medicaid is a joint federal-state initiative that currently sees states administer the program while receiving federal funds to finance 50 percent or more of the program's cost. On average, states still finance 43 percent of the program's cost, according to the Congressional Budget Office. That means that any federally mandated expansion of eligibility requirements would impose additional costs onto state governments.

Under Reid's plan, Medicaid recipients would be ineligible for federal subsidies to purchase private insurance on the newly created exchanges, meaning that much of the financial burden of providing coverage to lower-income individuals would be off-loaded onto states. Indeed, this is the very purpose of using Medicaid to expand health-insurance coverage instead of relying only on federal subsidies. The technique allows Reid and colleagues to get what they want, while forcing someone else to pay for it — namely, state taxpayers.

Reid's plan calls for shifting an additional 15 million individuals into Medicaid by 2019 through the eligibility expansion. For the Silver State, the change would expand the number of Medicaid-eligible individuals by 82.1 percent — highest in the nation — according to estimates from the Heritage Foundation. Nevada Health and Human Services officials put the number even higher — at 97.7 percent. This means that the state that would be most heavily penalized by Reid's legislation is his home state of Nevada.

The Gibbons administration estimates that an expansion of just 60 percent of Medicaid-eligible individuals would impose a cost to the state General Fund of $613 million between 2014 and 2019. Perhaps that's why Governor Gibbons has said the bill would make "the Grand Canyon out of this recession."

In addition to the extra cost that would be forced onto Nevada and other states, the program would mean discriminatory rationing of medical care for lower-income families. Medicaid typically under-reimburses doctors and clinics by 20-25 percent, forcing them to subsidize Medicaid patients. The result, as the Urban Institute has pointed out, is that "physicians have typically been less willing to take on new Medicaid patients than patients covered by other types of health insurance" — leading to greater scarcity of care and greater sensitivity to non-price rationing.

Governors from both political parties are openly criticizing Reid's effort to make the states pay for a new federal entitlement. Perhaps Reid and his colleagues should consider that states are not necessarily obligated to accede to congressional demands for more state money. Federal courts have declared that "state participation in the [Medicaid] program is voluntary."

In fact, the Heritage Foundation has estimated that Nevada could save $3.786 billion by 2019 if it were to end its participation in the Medicaid program and have no change in long-term care spending. All states together would save about $652 billion if they were to do the same.

This should be enough to at least give state officials significant pause before they agree to hand over General Fund dollars in order to finance a federal pipedream that, according to the CBO, would still leave 23 million uninsured.

Perhaps it's time to reacquaint Senator Reid with the precept of federalism.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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