Medicaid expansion rejection silver linings playbook: Deficit reduction

One of the biggest shortcomings of the Affordable Care Act (the post-Supreme-Court-decision-haircut version) is that it makes the state Medicaid expansions optional for states. As of this writing, 25 states have not signed on to the expansion, leaving millions of Americans below the poverty line without the ability to afford health insurance.

One piece of good news is the woodwork effect is real. Streamlining of the Medicaid enrollment process across all states will help many people who are currently eligible for Medicaid but never figured out how to apply will enroll, even in states refusing the expansion.

But there might be another silver lining to states refusing to expand Medicaid: deficit reduction.

First, a disclaimer:  My first-choice policy preference is to expand Medicaid. Actually, that's my second and third choices as well. And when it comes to prioritizing deficit reduction during times of high unemployment and recession, I side with the great Charlie Pierce:

Now I have only one opinion on economics — Fk The Deficit. People Got No Jobs. People Got No Money —

However, all else equal, I would rather to see a lower deficit than a higher deficit and a lower public debt than a higher one. (If nothing else, it gives the Fix the Debt crowd less leverage when they argue for gutting the welfare state.) And I was thinking that since the Congressional Budget Office projects that the Affordable Care Act will slightly cut the deficit over time, what happens if a significant number of states reject the Medicaid expansion, which makes up about half of the spending for the ACA?

To answer this question, I looked up projected state-by-state Medicaid spending figures from this 2012 Kaiser Foundation study. Using a spreadsheet, I added up the federal fund the 25 states that haven't indicated they will be accepting the expansion don't accept it over the next nine years.

 

That number comes out to $437 billion ($78 billion from Texas alone). That's a lot of money.

 

In fact, nominally, it's about of $48.5 billion a year, which is roughly 7.5 percent of the 2013 deficit. That overstates the impact a bit, because the numbers aren't strictly comparable, because A.) they are nominal, not year-of expenditure dollars (i.e. this doesn't adjust for inflation) and B.) Medicaid expenditures will be larger in later years as health costs grow -- though the federal share of spending will drop back to 90 percent by 2018.

Again, I deplore cutting the deficit on the backs of the poor. But until state governors start wising up, at least we're not blowing that Medicaid money on tax cuts for hedge fund managers. In fact, we're taxing hedge fund managers -- about 25 percent of the revenue for the ACA comes from increasing payroll taxes on wealthy incomes -- including investment income.

So keep pushing to expand Medicaid in states that haven't yet. Political pressure from combined with financial realities likely will push many of the recalcitrant states into the fold over the next few years. However, in every state we don't succeed, take a bit of solace in the fact that we raised taxes on the rich to cut the deficit. 

That's almost as French as universal access to health care.