Medicaid expansion places governors, tax payers and employers between a rock and hard place.

Arguably the only ‘good thing’ about U.S. Supreme Court Justice John Robert’s decision in July 2012 to not strike down the PPACA was his decision to provide governors a choice to expand their Medicaid rolls to the levels specified in the PPACA. In fact, this part of Robert’s ruling has been referred to by many as the only ‘silver lining’. In the end, however that perception depends upon who you ask. Many taxpayers are against the expansion because it will most certainly massively inflate state budgets all across the country. Many of which already point to Medicaid as their biggest line item.

Whether you use the Kaiser Family Foundation estimates, the Cato Institute estimates or the Congressional Budget Office. The expansion of Medicaid under the PPACA will put a significant new burden on the taxpayer. This is because the PPACA promises 100% matching federal Medicaid dollars for years 2014 through 2016 and 90% for years 2020 onward for states that elect to expand their Medicaid rolls. Even President Obama’s Medicare Actuary Charles Blahous doubts that promise. Most especially since the President’s own submitted budgets, as well as the bipartisan Simpson–Bowles Commission, and the budget resolution passed by the House of Representatives in 2012 already call for trimming Medicaid spending by a minimum of $100 billion.

And, unlike Supreme Court justice Elana Kagan who famously said during PPACA oral arguments: “It’s just a boatload of federal money to take and spend on poor people’s healthcare. It doesn’t sound very coercive to me.” We taxpayers realize that  ‘a boatload of federal money‘ comes from taxpayers and taxes themselves are inherently coercive.

Whilst the Obama administration touts the fact that the PPACA calls for the aforementioned matching federal funding for those who will be newly eligible for Medicaid in 2014. It is far less vocal about the fact that it only provides the existing or Traditional FMAP percentage match rate for the millions of Americans who were always eligible for Medicaid but either never knew they were or never bothered to enroll. These ‘old eligibles’ will now be required by federal law to maintain ‘minimum essential coverage‘ via Medicaid. Which means that they will all be enrolling in 2014 in order to avoid problems with the IRS. How much will the Traditional FMAP federal percentage match be in 2014? In states like Illinois and others it will be only 50%.


Who picks up the other half? That’s right, the state tax payer. Keep in mind Illinois taxpayers that this new tax increase will be in addition to the 66.66% tax increase Governor Quinn already imposed upon you in January 2011 and the $350 million additional tax increase in May 2012. How much will picking up the other half of the cost to enroll ‘old eligibles’ cost Illinois taxpayers? See the chart below. I’ll bet it’s closer to the CATO institute’s estimate of $10.1 billion.


The Illinois Policy Institute predicts that 1 in 3 Illinois residents will be Medicaid recipients by 2019 if Governor Quinn’s desire to expand Medicaid under the PPACA becomes law in Illinois. Worse yet, on January 30, 2012, the Civic Federation released its “Budget Roadmap” for the coming fiscal year. In it, they highlight the fact that state officials now believe that the Illinois Medicaid program will have between $21 and $23 billion in UNPAID bills by 2017. ‘Forward’…. to bankruptcy.

However, that’s just the cost to Illinois taxpayers. How many people nationwide are ‘old eligibles’? This 2010 article in the New England Journal of Medicine estimates that number to be 9 million Americans. Total cost to the states to enroll all of these ‘old eligibles’ on to Medicaid nationwide will be $931 Billion according to the Congressional Budget Office’s latest assessment. Keep in mind that those CBO assessments are only for years 2014 through 2022. What many governors are concerned about is what such a new commitment will cost state tax payers after the first 8 years? Well, we know what will happen after the first 6 years because beginning in 2020 the 100% federal Medicaid match rate for newly eligible recipients drops to 90%. This means that state taxpayers will pick up the other 10%. That alone will add billions to state budgets. However, a far more important question governors should be asking is what happens after the first 2 years?

You see the PPACA’s answer to improving Medicaid is to raise the amount the federal government pays to doctors who take MedicAID patients to a level commensurate to what the federal government pays to doctors who take MediCARE patients. Their thought process behind doing so is that more doctors will accept Medicaid under this arrangement because the reimbursement rate will be far higher. There’s only one problem. The federal government only provides funding for this massive increase in Medicaid reimbursement ratios for the first 2 years. Afterward, state tax payers are on the hook for the rest.

This, more than anything else related to Medicaid expansion is a fiscal ticking time bomb for state budgets and one that is not being discussed nearly enough. Furthermore, just wait until hospitals – who are forced to treat emergency patients under EMTALA – start pressuring states for reimbursement of more than $11 billion in annual federal payment cuts for uncompensated care. Hospitals are a powerful lobbying force and they will lobby hard for that money.


Recently Republican governors John Kasich of Ohio and Jan Brewer of Arizona and Rick Scott of Florida have decided to expand their Medicaid rolls under the PPACA. This has left many conservatives scratching their heads since both governors have been vocal public opponents of the PPACA. A closer look at the choice they faced sheds light on their decision. To understand it, we must first understand specifically how the PPACA expands Medicaid.

Prior to the passage of the PPACA, Medicaid was largely used to provide health care services to children of the indigent, their mothers, the disabled and seniors who spend down all their assets to qualify for long term care services. Under the new law childless adults will also be eligible for Medicaid with incomes at or below 133% of the federal poverty level – FPL. Since the PPACA disregards 5% of one’s income, the actual new eligibility level is 138% above the FPL. Using the Kaiser Family Foundation’s “Health Reform Subsidy Calculator” we can determine that a childless, adult would be eligible for Medicaid in 2014 if their annual income is at or below $15,302. For a family of four, their income would need to be at or below $31,155. This is a significant new burden on the taxpayer. Not only because 15.1 million childless adults would now be eligible for Medicaid but also because prior to the PPACA, Medicaid eligibility levels were set at 100% of the FPL. In 2012, that was $11,170 for an individual and $23,050 for a family of four in 48 contiguous states and D.C. It is this new annual income level ‘eligibility gap’. Specifically, income levels that fall within 100% and 138% of the FPL that creates yet another new problem for employers.

If a governor chooses to expand Medicaid under the PPACA, all of the newly eligible Medicaid recipients would simply be auto-enrolled onto Medicaid via the new ‘Health Insurance Exchanges’. And, since their income levels will be too low to qualify for a ‘Health Insurance Subsidy’. There will be no ramifications to employers if their employee’s annual income levels fall into this new ‘eligibility gap’. These new eligibles would simply enroll in Medicaid and eliminate the risk to their employers of being fined $2,000 annually for each of them under the PPACA “Employer Shared Responsibility” clause.

However, if a governor chooses not to expand Medicaid, employers in their state with 50 or more ‘full time equivalent’ employees would have to provide PPACA approved health insurance for all of their employees with income levels that fall into this new ‘eligibility gap’. Or else, pay a “Shared Responsibility” annual penalty of $2,000 for each employee (excluding the first 30 employees). Many employers will simply pay the annual penalty instead of providing PPACA compliant health insurance since the law mandates that employers can not require employees to pay more than 9.5% of their annual household income in cost sharing to help them pay for their health insurance. For example, if the cost to insure a single employee is $5,000 annually. The employer can not legally require the employee to pay more than $475 each year to help him/her pay for their health insurance coverage. This means the employer’s annual out of pocket cost to insure that employee would be $4,525. In this near future common scenario, paying the $2,000 ‘Employer Shared Responsibility’ penalty just makes better business sense.

Whilst certain Conservative governors may feel pressured to expand Medicaid because of the above scenario. It is crucial that they stick to their principles and not give in to requests from employers who are seeking relief on a micro level. For expanding Medicaid will do nothing but increase health insurance costs to everyone else, further burden taxpayers of other states. And, require employers to pay much more on a macro level as their tax burdens increase to pay for yet another massive entitlement.

Intelligent alternatives include proven Medicaid reforms

Their are intelligent alternatives to simply flooding our bankrupt Medicaid rolls with 17 million more Americans. These alternatives have already been proven successful in states like Florida, Indiana and Louisiana. In fact, if Illinois has adopted Florida’s Medicaid reforms our state would have saved $1.1 billion in the year 2011 alone. Sadly, even with these proven reforms, Republican governors like Arizona’s Jan Brewer and Ohio’s John Kasich haven’t learned a thing from these successful reforms. Instead, they have chosen to double down on failure by expanding Medicaid to historic proportions. Worse yet, they want you to pay for their wrong headed decisions via higher taxes and more ‘cost shifting‘. Both of which will do nothing but continue increase the cost of health insurance for everyone else.


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5 responses to “Medicaid expansion places governors, tax payers and employers between a rock and hard place.

  1. GOP Governors prefer socialism. They are preferring single payer Medicaid over the market oriented health exchanges of the PPACA.

  2. Pingback: Medicaid expansion places governors, tax payers and employers between a rock and hard place. « Tax Rate Calculator

  3. Pingback: Governors can and should stop state based health insurance exchanges. | C. Steven

  4. Pingback: The TRUTH about Preexisting Conditions

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