Medicaid Expansion’s Bad Priorities

Published January 24, 2015

Gov. Bill Haslam proposes to expand Tennessee’s Medicaid program under the Affordable Care Act. The governor’s heart may be in the right place, and he may have persuaded himself that it’s better to accept federal funding for the expansion than leave it on the table, but Tennessee’s legislators and citizens shouldn’t make the same mistake. 

On its face, expansion might appear to be a no-brainer. The federal government will pay for all of the expansion cost for the first few years, and 90 percent afterwards. The expansion would undoubtedly help reduce the number of people who are considered uninsured, which is probably a good thing.

But once you get past the pro-expansion talking points, things look far less rosy. In fact, getting on the expansion bandwagon is almost certain to end up in disaster.

Consider the high level of federal funds involved. The federal government normally covers about 65 percent of what Tennessee pays for its Medicaid program. Getting 90 percent covered for people made newly eligible under an expansion is obviously a better deal than that.

That 90 percent share, however, is not carved in stone. In fact, in past budgets both the Republican Congress and President Obama himself have suggested the federal government’s share under the expansion should be reduced.

When that happens (and the federal budget deficits that loom in the next couple of years pretty much guarantee it’s a matter of when, not if), Tennessee will have to make some pretty terrible choices. The same is true of the 10 percent or more Tennessee will definitely have to come up with once the federal match drops; that money has to come from somewhere.

What kind of choices will Tennessee have to make to fund its share of the expansion, whatever percentage it ends up being? Raising taxes to cover the shortfall is one obvious option. Perhaps the state will impose an income tax – fightin’ words for many Tennesseans.

Another option would be to reduce funding for other items in the state budget. Education would be the obvious place to take from, given K–12 and higher education spending currently consume just under half of Tennessee’s general funds.

Another option would be to reduce state funding for those currently on Medicaid, primarily poor, single mothers and their children, plus the elderly, and instead protect spending for the expansion population, primarily able-bodied childless men, more than one-third of whom have criminal backgrounds.

This rather cruel choice would make great sense in financial terms, because the way the federal match works, cutting poor women, children, and the elderly loses less funding for the state than cutting childless, able-bodied males. For every $100 the state spends on its traditional Medicaid population, it receives $186 in federal funds, whereas for every $100 it spends on the expansion population, it receives $900. That’s a huge incentive for the state to cut funding for low-income mothers, children, and old people.

And although lowering the number of uninsured may seem a good thing, it does little to provide more access to care. Medicaid badly underpays doctors and hospitals, causing many of them to refuse to accept more than a small number of patients covered under the program.

Gov. Haslam should focus his energies on getting real reform for his state’s Medicaid program, starting with pushing for block grants that give him and the legislature the flexibility they need to craft solutions that work in Tennessee instead of satisfying the whims of politicians and bureaucrats in Washington, DC.