Michigan’s Republican governor, Rick Snyder, was among the many GOP state executives who made national headlines this winter by endorsing Obamacare’s expansion of Medicaid, America’s government-run health insurance program for the poor. But what isn’t making headlines is that Michigan’s legislature, like its counterparts in Florida, Ohio, and Arizona, is not going along.
Expanding Medicaid, said Snyder on February 6, “makes sense for the physical and fiscal health” of Michigan. “It also puts Michigan, rather than Washington, in the driver’s seat in terms of implementation [of Obamacare], which allows us to better address Michigan’s specific needs.”
A fiscal windfall in the near-term, perpetual losses thereafter
There’s plenty of reason to disagree. It’s true that the state is likely to enjoy a short-term fiscal windfall if it expands Medicaid. But by 2020, the expansion will sink into the red, and lose money for the state thereafter.
The big factor in the Great Lakes State is that Michigan today has a very large mental health program for low-income state residents who aren’t eligible for Medicaid. By implementing Obamacare, Michigan can offload the cost of this program onto federal taxpayers. Indeed, according to estimates from the University of Michigan, the entire fiscal windfall that will accrue to the state can be accounted for by a reduction in state mental health spending ($885 million over five years) and a corresponding reduction in spending on health care for prison inmates ($234 million over the same period).
Overall, U of M projects that the state will make $1.1 billion off of the Medicaid expansion over its first five years, from 2014 to 2018. However, over the next five years, as more people sign up for the program, and the proportion of federal funding decreases, the state will lose $113 million. If you project out the next five years, assuming (as the university does) that Medicaid spending grows at 3 percent, while offsetting savings grow at 2.3 percent, with a 90 percent federal match, the state will lose $325 million over that period, with larger losses in future years.
State projections could be optimistic
And that’s based on a middle-case scenario. If more people than anticipated sign up for the program, or if costs are higher than projected, or if Congress decreases the federal match rate, or cracks down on state provider taxes, Michigan’s losses will be greater.
Gov. Snyder likes to call himself “one tough nerd”—it’s even his handle on Twitter—but it’s hardly tough to saddle Michigan taxpayers with perpetual deficit spending in order to collect a windfall while you’re in office. Snyder insists that he will sock away a portion of the near-term windfall to pay for future spending, but the history of entitlement programs should make us skeptical of that promise. Both Social Security and Medicare accumulated substantial surpluses in their early years, only to incur losses later on. The savings were not put away for a rainy day, but rather were frittered away on other priorities.
Today, even without Obamacare, Michigan spends 45 percent of its state budget on health care. That compares to 30 percent on education, 12 percent on jobs programs, and 6 percent on public safety—police, firemen, and the like. Health care is crowding out these other important state services, a problem that Obamacare will make worse.
State legislators’ skepticism will increase
The good news is that Michigan’s Republican-controlled legislature is displaying a responsible level of skepticism to Gov. Snyder’s proposal. In March, the House Appropriations subcommittee excluded funding for the Medicaid expansion from its relevant fiscal legislation. Rep. Matt Lori, the chairman of the subcommittee, actually supports the expansion, but his colleagues do not. “The short-term economic benefit is very appealing,” said Rep. Robert VerHeulen. “But I generally don’t support expansion of government.”
A big sticking point for VerHeulen is that the 1965 Medicaid law forbids states from asking Medicaid beneficiaries from contributing meaningfully to the cost of their own care. “Even if it’s 50 cents, it’s something contributing to one’s own health care or well-being,” says VerHeulen. “I think that’s a healthy objective.”
Lori, for his part, seems optimistic that he can persuade House Republicans to go along with the expansion. “People just need to be educated on the whole thing,” he said. “It’s very complicated.” “We don’t have the votes for what the governor put out,” said Senate Majority Leader Randy Richardville, “but that doesn’t mean we don’t have the votes to get something done that would expand Medicaid.”
It’s just as likely, however, that as Michigan legislators get more educated about the expansion, their skepticism will increase. That’s what’s happening in other GOP-controlled states.
Expansion founders in Ohio, Florida, Arizona
Last Thursday, the Ohio House of Representatives passed its biennial budget; like its counterpart to the north, the House excluded funds for the Medicaid expansion from the bill, despite the fact that Gov. John Kasich supports the expansion. (As with Michigan, there remains the possibility that the expansion could be funded in separate legislation.) The Florida House and Senate have also rejected the expansion, though they remain open to attractive market-oriented alternatives.
Arizona, another Republican-controlled state with a pro-expansion governor, is also a place where expansion is stalled. “The answer now is no,” saidArizona House Speaker Andy Tobin. “And I’m not putting the governor’s language up on the board.”
Arkansas, which has a Republican legislature and a Democratic governor, did pass an expansion bill last week; there, leading Republicans—naively, in my view—hope that they can make the Medicaid program function like private insurance does. Pro-expansion Republicans there have already broken their promise to pair the Medicaid expansion with tort and tax reform, bills that did not pass the legislature. The legislative session ends on Tuesday.
From a political standpoint, these state-level battles are playing out pretty consistently. On the pro-expansion side are the all-powerful hospital lobbies, who jump at any chance to grab taxpayer dollars; and the usual collection of progressive activists. But legislators in conservative districts are wary of endorsing Obamacare, and local Tea Party groups have made clear that they feel the same way.
“I am not a dictator,” President Obama has explained. “I’m the president.” So too it goes in state capitals, where Republican governors are finding that their endorsements of expanding Medicaid are, for now, facing strong resistance. The game is far from over—these state legislatures could change their minds—but expanding Medicaid has turned out to be far more challenging than many people once thought.