By John Hood
RALEIGH — Of course Congress and the White House are going to reduce federal funding for Medicaid expansion. Of course North Carolina and other states will be forced either to reduce Medicaid coverage or to shoulder billions of dollars in additional medical expenses. That was always the inevitable endgame for Medicaid expansion.
No, you haven’t missed any official announcements. Neither congressional leaders nor incoming Trump administration officials have announced a cut in federal Medicaid reimbursements. What I’m reacting to is a recent story in Governing magazine by KFF Health News reporting that “the Affordable Care Act’s Medicaid expansion is back on the chopping block.”
Although the ACA’s subsidized private-insurance exchanges have hogged most of the attention since the bill’s passage in 2010, the primary effect of the legislation was to expand Medicaid. That’s what accounts for most ACA spending, and for most of the subsequent decline in uninsured Americans.
The legislation didn’t just authorize states to expand their Medicaid programs to cover childless, able-bodied adults. It hurled a bundle of carrots and sticks at state governments to get them to comply. In 2012, the U.S. Supreme Court ruled that the ACA’s mandate that all individuals purchase health coverage was a constitutional use of congressional taxing power (although the mandate was never effectively enforced and later abandoned). In that same decision, however, the high court ruled Washington couldn’t coerce states to expand Medicaid.
The sticks went poof. That left the carrots — in particular, a promise that the federal government would pay for 90% of the cost of serving the Medicaid-expansion population.
As I and others have pointed out repeatedly, this promise never made any rational sense. Before ACA, Medicaid covered the elderly and disabled, along with low-income children and mothers. Although the latter groups made up most of the Medicaid population, most Medicaid expenditures were for elders and the disabled requiring ongoing and expensive care.
The federal share of those non-expansion expenditures varies by state, based on per-capita income. In North Carolina, the current share is 65%. Given the federal government’s already gigantic deficits and their projected growth over the next two decades, does it strike you as reasonable — and politically sustainable — for Washington to pay two-thirds of the cost of treating quadriplegic children or housing elders in nursing homes while simultaneously paying nearly all the cost of a routine doctor visit for a healthy non-working adult?
Brian Blase, who served in the first Trump administration and now runs the Paragon Health Institute, proposes phasing out the enhanced Medicaid share over eight years. By 2034, states would receive the same federal funding for expansion enrollees as they do for other Medicaid enrollees. Other health care specialists have proposed other transitions and timelines. I’m not convinced the second Trump administration will take immediate action on the issue, given its other stated priorities, but something like this is going to happen within the next decade, even if a Democrat succeeds President Trump in 2029.
North Carolina lawmakers didn’t sleepwalk into the scenario. Their expansion legislation included a proviso that if federal funding falls below 90%, “Medicaid coverage for this category of individuals shall be discontinued.” Eight other states have comparable safeguards.
If this occurs, policymakers will have another chance to get universal coverage right. Yes, you read that correctly. Most lawmakers in both parties, conservatives and progressives alike, favor policies that ensure access to basic medical services, including taxpayer-funded subsidies for poor people and those with chronic conditions.
What conservatives don’t favor is a single-payer system, controlled by government bureaucrats and funded primarily by taxes. A better policy mix would include promoting innovation, deregulating the market for medical services, and replacing the current tax exclusion for employer-provided health insurance — in effect a huge subsidy that disproportionately benefits affluent households — with universal tax credits, adjusted for age and preexisting condition, to purchase private health plans.
While states can play a key role on deregulation, most of this will require action in Washington. Hope springs eternal.
John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).
