There Is No Medicaid Free Lunch

Published August 23, 2012

In its continuing quest for bigger government and a smaller private sector, the Obama administration has been profligate in its claims government programs give individuals and states free or low-cost access to … just about everything. Medicaid is a vivid example of how false and damaging those claims are.

Consider, for example, a single mom earning about $29,000 a year who has two kids living with her in public housing. She works hard trying to make ends meet. But thanks to the alphabet soup of the welfare state created over the course of decades – programs such as Medicaid, food stamps, child care subsidies, energy subsidies, S-CHIP and more – this young woman is unlikely ever to reach a point where she is able to stand on her own two feet.

According to calculations of Gary Alexander, the head of the Department of Welfare in Pennsylvania, $29,000 is the cutoff this young woman should never pass. That’s where she becomes ineligible for many of the taxpayer-supported programs she currently enjoys. In order for her to make up for lost entitlements and benefits funded by federal and state taxpayers, she’d have to increase her income from $29,000 to $69,000, Alexander calculates.

One of the biggest parts of this gap is Medicaid. Statistics say it won’t give her quality health care, but she’s understandably scared to leave the program and risk having nothing at all. She is trapped in an entitlement ghetto, and she and her children are very unlikely to escape this dependency, statistics demonstrate.

Over the past several decades, under Republican and Democratic administrations alike, Medicaid has been growing bigger and bigger, with 51 million people enrolled in the program today. Medicaid pays for more than four of every 10 U.S. births. Last year it paid for 70 percent of all births in the state of Louisiana.

By 2020, if the Obama administration has its way, the nation will add more than 25 million people to Medicaid, and another 21 million in subsidized coverage through Obamacare’s exchanges. Including Medicare, by 2020, more than 157 million people will have taxpayer-subsidized health care.

This was Obamacare’s ultimate goal: a system where the vast majority of Americans are receiving a check from the government. Then, when the system collapses under its own weight and the rising cost of premiums, the only path forward would be single-payer, the leftist dream.

Thanks to the Supreme Court, states can now pause some of this vast entitlement expansion. The Obama administration wanted to entice states to expand their Medicaid programs with the promise of billions in federal funding, where the states would have to shoulder only 10 percent of the costs in future years. However, in order to get this “free money” the states would have to take on enormous new costs both for their currently eligible population and the newly expanded one. And those currently eligible for Medicaid but not yet enrolled would be paid for at the much lower existing matching rate–with the state having to make up the difference.

The Court’s decision allows states to reject this expansion while retaining their current funding–and eight have already done so, including Florida, Louisiana, and Texas.

The Congressional Budget Office forecasts millions of new enrollees will come out of the woodwork to enroll in Medicaid under the expansion, dramatically increasing states’ costs. Texas alone would have had to find $27 billion in new revenue every year to pay for this. People surprised at the vehemence of Republican Gov. Rick Perry’s rejection of this “free money” should consider the fact that Texans have no state income tax–which they’d likely have to create just to fund this massive new entitlement.

Less-astute governors like the promise of expanding Medicaid and shifting costs to the future, but the smart ones know there’s no such thing as free money. Whether the matching rate is 60-40 federal and state or 90-10 federal and state, 100 percent of the costs are borne by the taxpayer. And as the program goes forward, the states will be stuck with uncontrollable cost increases for programs that trap millions of people in subpar health care.

So if your governor says he’s considering expanding Medicaid, ask him this: Does he believe in a free lunch? The fact is, you and your children will be paying for that free lunch long after he’s out of office.

Benjamin Domenech ([email protected]) is a research fellow at The Heartland Institute.