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Medicaid expansion will cost Pennsylvania

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By Drew Gonshorowski
Monday, July 15, 2013, 9:00 p.m.
 

Pennsylvania legislators recently declined to budget for a huge expansion of the state's Medicaid rolls, as envisioned in the 2010 Affordable Care Act, aka ObamaCare. That was a prudent decision. Before lawmakers think about pouring more people into the system, they should focus on reforms that will enable the state to better serve those already in the program.

Lawmakers in all states were under tremendous pressure to expand Medicaid this year. Enrolling millions of people in the program is a critical component of ObamaCare. Originally, the law simply required states to extend Medicaid coverage to people making too much to qualify for the program. But the Supreme Court ruled that unfunded mandate to be unconstitutional.

So ObamaCare supporters switched to Plan B: The feds promise they will pick up 100 percent of the tab ... at least initially. Moreover, they say, states will actually save money by giving Medicaid coverage to those who are currently uninsured.

Several analyses have purported to show that expanding coverage is an economic boon to states. They argue that, since Washington pays the freight in the early years, expansion costs a state nothing. Moreover, they say, the injection of federal funds will spur economic activity, thereby increasing tax revenue.

But while early fiscal gains may be significant, they won't last forever. As the match rate falls, the program expansion begins to cost a state. In some studies, the expansion starts biting into state budgets as early as 2017. In those studies that show net fiscal gains during a five- to 10-year period, the gains are concentrated in the early years.

When deciding whether to expand Medicaid, lawmakers must recognize that, as time goes by, the expansion will cost the state more and more, year after year.

Keep in mind that Medicaid is already the No. 1 cost driver in the Pennsylvania budget. Nearly a quarter of all spending from the state's general fund goes to provide Medicaid services to some 2.2 million residents.

Absent reform, Pennsylvania's Medicaid costs will continue to grow, consuming an ever increasing share of the budget, even without the ObamaCare expansion. With an expansion, Medicaid spending will accelerate even more in just three years' time, further crowding out funding for other important public services like education, corrections and transportation.

And that is the best-case scenario. Remember, there is no guarantee the feds will make good on their promised match rates or even short-lived reimbursement increases for doctors who take on Medicaid patients. As the federal deficit increases by hundreds of billions every year, it's hard to see how they can come up with the cash required to honor those promises.

Also doubtful is the success of a much-discussed “provider tax” scheme to pull in more federal funding. Some states use provider taxes to grab more revenue for their Medicaid programs and also to increase the amount of federally matched dollars they receive. If the federal government puts a stop to these claims, states would lose out on federal dollars as well as tax revenue.

We can argue about the magnitude and timing of the costs and savings associated with a Medicaid expansion, but one point in this debate is clear: In the long run, it would inevitably drive up costs for Pennsylvania and stretch important state resources thin for a faulty program.

Drew Gonshorowski is a health care economist and policy analyst in The Heritage Foundation's Center for Data Analysis.

 

 
 


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