New Unfunded Federal Medicaid Mandate Would Spell Trouble for States

Published May 31, 2016

Health care reform legislation recently ushered through the U.S. Senate by Majority Leader Harry Reid (D-NV) could do its worst damage to the fiscal health of his home state of Nevada.

The Patient Protection and Affordable Care Act, H.R. 3590, imposes an unfunded mandate requiring higher spending by state taxpayers in order to expand Medicaid.

Would Increase Medicaid Enrollment

Spending on health and human services—primarily Medicaid and SCHIP—is already Nevada’s second-largest expenditure category behind education. In the 2009-11 biennium, 29.4 percent of state General Fund spending is allocated to it. According to Health Care Financing and Policy Division Administrator Charles Duarte, spending specifically on Medicaid currently amounts to $1.5 billion annually in Nevada, with $450 million coming from the state’s General Fund.

The health-care overhaul currently in conference between the House and Senate would obligate Nevada to pay even more to finance federal health care mandates. H.R. 3590 attempts to extend health insurance to many of the currently uninsured by, among other measures, dramatically loosening the eligibility requirements for Medicaid. The bill would require states to make any individual earning less than 133 percent of the federal poverty line eligible for Medicaid coverage.

Costs Shifted to States

States administer Medicaid while receiving federal funds to finance 50 percent or more of the cost. On average, states still finance 43 percent of the program’s cost, according to the Congressional Budget Office. Thus any federally mandated expansion of eligibility requirements would impose additional costs on state governments.

Under Reid’s Senate plan, Medicaid recipients would be ineligible for federal subsidies to purchase private insurance on the newly created exchanges, meaning much of the financial burden of providing coverage to lower-income individuals would be offloaded onto the states.

The technique allows Congress to expand health insurance coverage while forcing state taxpayers to pay for it. The Senate version would call for shifting an additional 15 million individuals into Medicaid by 2019 through the eligibility expansion.

Nevada Hit Hardest

For the Silver State, the change would expand the number of Medicaid-eligible individuals by 82.1 percent—the highest projected expansion in the nation—according to estimates from the Heritage Foundation. Nevada Health and Human Services officials put the number even higher— 97.7 percent. Thus the state that would be most heavily penalized by Reid’s legislation is his home state of Nevada.

Nevada Governor Jim Gibbons’ administration estimates an expansion of just 60 percent of Medicaid-eligible individuals would impose a cost to the state General Fund of $613 million between 2014 and 2019. Gov. Gibbons has said the bill would make “the Grand Canyon out of this recession.”

In addition to the extra cost forced onto Nevada and other states, the program would mean discriminatory rationing of medical care for lower-income families. Medicaid typically under-reimburses doctors and clinics by 20-25 percent, forcing them to subsidize Medicaid patients. The result, as the Urban Institute has pointed out, is that “physicians have typically been less willing to take on new Medicaid patients than patients covered by other types of health insurance.” That leads to greater scarcity of care and greater implementation of non-price rationing.

States Can Opt Out

Governors from both political parties are openly criticizing the congressional effort to make the states pay for this new federal entitlement, and states are not necessarily obligated to accede to congressional demands for more state money. Federal courts have declared “state participation in the [Medicaid] program is voluntary.”

In fact, the Heritage Foundation estimates Nevada could save $3.786 billion by 2019 by ending its participation in Medicaid altogether if either the House or Senate version is passed. All states together would save about $652 billion in total if they were to do likewise, according to the Heritage study.

This could give at least some state officials significant pause before they agree to hand over General Fund dollars to finance a federal health care plan that, according to the CBO, would still leave 23 million uninsured.

Geoffrey Lawrence is a health care and fiscal policy analyst at the Nevada Policy Research Institute.