Is expanding Medicaid a cure for state budget problems?

There are some in the Virginia state legislature who think bringing Obamacare's Medicaid expansion to Virginia will help reduce Virginia's $300 million dollar deficit. Veronique de Rugy explains the fallacies behind this notion:

If it seems necessary, I’ve already explained already why the idea that Medicaid expansion will cost nothing to the states and could even be financially beneficial doesn’t hold water. For one thing, states will bear the full administrative costs of the Medicaid expansion, and those can average 5.5 percent of benefits paid. And in the long term, while the expansion is covered fully (with the exception of administrative costs) for the first three years, in 2016 the federal share drops to 90 percent. In Virginia this will mean a state contribution of $200 million a year. The state has a $300 million shortfall today that’s threatening the state’s bond rating, and the Democrats want to permanently add at least $200 million spending a year starting in a few years?

But that’s not all. Everyone who will enroll now because of the publicity surrounding the expansion will fall under the old Medicaid formula, which in Virginia’s case means that the state picks up 50 percent of their benefit costs. There are many more reasons why the expansion isn’t a free lunch, of course (I’ve listed many of them here). But the bottom line is that spending money above and beyond what the federal government will pay for will not improve your budget deficit.

There’s another obvious reason why the Democrats’ thinking about the federal dollars for the expansion is nonsense. My understanding is that the federal money is meant to cover the added cost for the provision of health-care services to the poor, through Medicaid. The money is automatically allocated for the expansion. The only way for Virginia to use this money to patch their deficit is if 1) they don’t spend the money on poor people, 2) they don’t pay providers of the services, or 3) they do a mix of both.  Either way, they won’t get away with it for long.

Campaign for Liberty state groups are fighting Obamacare expansion in Virginia and other states. If you are interested in joining our efforts, check here to find out about Campaign for Liberty groups in your state.

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