When the Supreme Court handed down its Obamacare decision in June, the media focused on the law's individual mandate, which forces Americans to buy government-approved health insurance or else pay a fine. But a more far-reaching aspect of the court's opinion has gotten less attention.
By a vote of 7-to-2, the court granted states the ability to opt out of the health law's dramatic expansion of Medicaid, America's $450 billion-a-year health care program for the poor. The Patient Protection and Affordable Care Act tried to force states to increase their Medicaid rolls by as many as 17 million Americans in total, or else lose federal funding for the entirety of their Medicaid programs.
Given that Medicaid is the largest line item in most states' budgets, the court rightly described the "or else" provision in the Medicaid expansion as a "gun to the head ... that leaves the States with no real option but to acquiesce in the Medicaid expansion." The court noted that this would have destabilized the Constitution's balance of power between the federal government and the states.
But the court left states with no clear guidance -- for example, may states go even further and trim down their existing Medicaid programs? And, of course, the court was silent on the economic and moral questions of whether states should expand their Medicaid programs.
Pundits have expressed surprise that states wouldn't want to expand their Medicaid programs. Because Obamacare funds most of the expansion with federal spending, states that opt out will see their residents' federal tax dollars sent out to other states that spend the money. But the "free lunch" here isn't so free. More cautious states worry that Obamacare is a bait-and-switch, whereby the federal government will gradually decrease its commitment to the program, leaving states with a much larger long-term bill.
"It's not free," says Florida Gov. Rick Scott. "Eventually, [state governments] will be on the hook for 50, 45 percent of it." Indeed, the president's own 2012 budget proposed shifting $100 billion of Medicaid's costs to the states. And Medicaid spending is already busting state budgets from coast to coast, forcing governments to cut back on education and policing.
What's even scarier for states is that more than a third of those currently eligible for Medicaid haven't even signed up. Were they all to enroll, state Medicaid enrollment could increase by more than 50 percent on top of the Obamacare expansion.
Are states hurting the poor by resisting this expansion? Not necessarily. Studies have found that Medicaid's impact on health outcomes is modest at best. In many cases, patients on Medicaid actually fare worse than those with no insurance at all.
One reason is that the program pays doctors far less than private insurers do. In D.C., Medicaid pays doctors 38 cents for every dollar that private insurers pay for the same services, on average. New York's Medicaid program pays only 29 cents on the dollar. Incredibly, two MIT economists have found that three-quarters of physicians receive better compensation from cash-paying uninsured patients than they do from Medicaid.
As a result, many doctors are forced to shut their doors to people on Medicaid, making it harder for those on the program to get preventive and even urgent care. One study found that doctors wouldn't even see children on Medicaid who complained of asthma, seizures or broken arms. This is a program that should at least be fixed before it is expanded.
A more humane approach for the poor would be to hand Medicaid money directly to the states, with what policy wonks call a "block grant" -- much like what was done under Clinton-era welfare reforms in the 1990s. Under the current system, much money is wasted because of bureaucratic delay in Washington, preventing states from adopting common-sense procedures for avoiding waste and fraud. Block grants would allow states to spend Medicaid money more efficiently, directing it to the people who need it most.
Before we spend trillions of taxpayer dollars we don't have expanding Medicaid, shouldn't we first ensure that the program is providing adequate health care to those who are already on its rolls?
Avik Roy is a senior fellow at the Manhattan Institute and a health care adviser to Mitt Romney.