States Should Be Wary of Expanding Medicaid Under ACA

December 16, 2012

The expansion of Medicaid under the Affordable Care Act as a way to boost healthcare for the poor, but it is a classic example of salting the mine.

As I listened a few weeks ago to a presentation on the financial factors favoring expansion of Medicaid under the Affordable Care Act, a thought occurred to me which made the whole subject much more interesting: "Dear Lord, they are salting the mines!"

Although I have previously studied and written on most of the provisions of the reform law - complex numbers make my head hurt.  Given the 50/50 chance Mitt Romney would be elected, I selfishly had half a hope that I just might be able to skate altogether on how the federal government intended to convince states to buy into expanding Medicaid rolls. Alas, the fates were against my laziness. So it was a month after the election that I found myself crestfallen, listening to a lecture on complex numbers. Then, like a blue tick hound, my ears perked up.

I was born in the Smokey Mountains, and I know a "scam" when I hear one, and certainly know what "salting" is.   Salting occurs when a land owner, wishing to sell an essentially worthless gold mine, fills buckshot shells with solid gold. Then, he literally blasts gold into the walls of the mine. On the surface, the result looks like the veins in a genuine gold mine. It isn’t until the victim invests his money (and the seller is long gone) that the mine is revealed to be worthless.

Medicaid under Title XIX of the Social Security Act of 1965 has always been something of a "wedge" issue. Care for the poor had historically been a local matter, and in the South in no small way, there was a racial component. Care for poor minorities in many states fell woefully short; "separate but equal," existing in name only.  In the mid-60s, state’s rights advocates conceding that change was inevitable, nonetheless wanted to keep the federal government out of the delivery of healthcare, and more importantly, did not want a huge new federal bureaucracy. If at all, conservatives felt the government should deliver block grants of money to the states to be administered as they saw fit.

After much debate (and arm-twisting), Congress decided that Medicare for the elderly would be the sole responsibility of the federal government. The states would administer Medicaid funds for the poor, with federal government picking up just over half of the tab. Simply being poor, however, did not make someone automatically eligible.  In most states, a person must be poor, plus some other qualifier such as pregnancy, disability, or being below the age of 18.

The Affordable Care Act expands coverage in 2014 to anyone up to 133 percent of the federal poverty level for all states which participate. The U.S. Supreme Court upheld the reform law in National Federation of Independent Business v. Sebelius in part because participation in this new Medicaid expansion by the states is "voluntary." Realizing that expansion of Medicaid would create new financial burdens and new administrative nightmares, one might reasonably ask, "Why would any state agree?"

This is where the "salting of the mines" comes into play.  The federal government front-loaded the deal with golden buckshot, and blasted it into the sides of the mine. "We will give you 100 percent of the funds to pay for the expansion," the feds told the states. "It won’t cost you anything." At least, that is, forthree years.

That’s when my ears perked up. The feds are up to something. Could it be what looks like a gold mine, will play out quite differently?  The way this works is simple, but takes a little thought.  The expansion of Medicaid would come as a great relief to both the poor and hospitals (who must treat emergencies without regard to ability to pay) alike. Although the poor are not politically powerful, hospital associations are. The federal government salts the mine with free dollars, counting on hospital groups to pressure states into buying in.

After three years, when the 100 percent subsidy begins to expire, the federal government is banking that it will be politically impossible for state-elected officials to take away an entitlement once the poor have gotten used to medical insurance as a welfare benefit. (Some also suspect that this is a Democratic master plan to give the poor a reason to vote.) Once the states have bought in, many fear the states are in for a rude awakening. The federal government will then "cost shift" to the states in the name of balancing the federal budget. 

How do doctor’s groups feel about this? According to a December 12 story by David Pittman, writing for MedPage Today, many state medical associations have kept a low profile on the topic. Although many governors, including Texas’ Rick Perry have vowed to refuse to expand Medicaid under the reform law, the Texas Medical Association hasn't taken a stance on the issue. "We're vetting the issue right now," spokeswoman Pam Udall told MedPage Today. "We won't have a firm position until late December."