In 2012, prompted by a U.S. Supreme Court ruling, President Barack Obama turned what had been a “gun to the head” of state lawmakers and governors into an act of extraordinary (if reckless) generosity. The president offered the states "free money" – and lots of it – in return for their support for a central element in the administration's Affordable Care Act, aka Obamacare. To make sense of the current debate over possible repeal and replacement of the controversial health care law, it pays to revisit this history.
As originally written, Obamacare would have forced every state to expand eligibility under Medicaid to childless and able-bodied people making up to 133 percent of the federal poverty level or face the loss of all federal matching funds – equal to about $3 for every $2 from the states – including federal funds supporting more than 50 million pre-ACA Medicaid enrollees.
While upholding the constitutionality of the ACA in a broad sense, the Supreme Court struck down this part of the law.
“The financial inducement Congress has chosen is much more than relatively mild encouragement,” Chief Justice John Roberts wrote. “It is a gun to the head.”
The administration then countered by offering to pick up not just 60 percent of the cost of expanding the program, but 100 percent through the first three years (2014-16), and no less than 90 percent for every year after that.
What a deal! For every dollar of its own money, a state would get $9 more from the federal government. No wonder hospital associations, chambers of commerce and other organizations applauded the move.
But where was all this “free money” from the federal government to come from – if not from higher taxes or increased borrowing that would eventually have to be either repaid or repudiated banana-republic style through runaway inflation, at the cost of wiping out both savings and investment? Ask not for whom the bell tolls in that case. It tolls for all of us throughout the 50 states.
The Obama administration was running annual deficits of a trillion dollars a year – and borrowing almost $400 for every $1,000 it spent – when it made its commitment to giving away limitless money to states that agreed to expand Medicaid.
So far, 31 states have taken the bait. They include 10 states with Republican governors and control of state legislature – Arkansas, Arizona, Iowa, Indiana, Kentucky, Michigan, New Hampshire, North Dakota, Ohio and West Virginia. Sixteen red states – including Missouri – have refrained from joining in the expansion.
From 2014 to 2017, total federal spending on Medicaid grew to $389 billion from $299 billion – an increase of 30 percent. By 2020, it is expected to increase to $450 billion, according to Congressional Budget Office estimates. That rate of increase is several times faster than the U.S. economy is growing. And there’s the problem: It is not sustainable.
I cannot predict whether Congress will repeal and replace the health care law. But two things are certain: First, there will be no "cuts" in Medicaid expenditures that actually decrease overall spending; at most, they will slow the rate of increase in spending. Second, failure to do anything to reform the misnamed Affordable Care Act in a meaningful way could be catastrophic.
Too much “free money” is a one-way ticket to financial ruin.
Andrew Wilson is a resident fellow and senior writer at the Show-Me Institute, a free-market think tank based in St. Louis. He can be reached at firstname.lastname@example.org