When
the Supreme Court ruled in June that states could decline to
participate in ObamaCare’s Medicaid expansion, the White House
dismissed the idea that any state would actually choose this
option. But earlier this week, Texas’ Republican Governor,
Rick Perry became the sixth state governor to announce that his
administration would
not participate in ObamaCare’s Medicaid expansion. I suspect he
won’t be the last. In addition to the six
states that have already indicated they won’t participate, a

handful of others are leaning toward saying no. 

This has resulted in a lot of predictable grumbling and head
scratching. The federal government will pay for a full 100 percent
of newly eligible Medicaid beneficiaries for the first three years
of the expansion, and 90 percent of the cost after that. “When it
comes to Medicaid, the states don’t appear to be on the hook for
very much money,” according
to a report at NPR. Sarah Kliff at The Washington Post

describes the Medicaid expansion this way: “States get loads of
free money to pay their residents’ health-care bills.” What state
would be so stupid as to turn down free money? 

Maybe because it’s not free? Indeed,
according to Matt Salo of the National Association of State
Budget Directors, the idea that the money is somehow free is “a big
lie.” Not only do states have to pick up some of the technical
costs of administering the Medicaid expansion, including setting up
the databases and computer networks to coordinate Medicaid with any
state health exchange, they’re also responsible for new enrollees
who already qualify for benefits but have yet to take them.

That’s because the law only provides 100 percent funding for the
“newly eligible.” Right now, however, there are an estimated 10-12
million individuals who qualify for Medicaid benefits but aren’t
enrolled. As a result of the expansion and the law’s health andate,
many of those individuals are expected to enroll. As I noted
back
in my 2010 magazine feature on state-driven resistance to
ObamaCare, this is known as the “woodwork effect,” and it could
cost states a bundle—as much as $12 billion by 2020. 

And that’s in addition to the costs incurred starting in 2017
when the federal government will no longer pay for 100 percent of
the newly eligible. Even though the federal government will still
be paying 90 percent of the cost for those individuals, the state
share will add a substantial burden to many state budgets. Indiana,
Florida, California, and North Dakota are all looking at more than a billion dollars in
total extra Medicaid costs between 2014, when the expansion is
scheduled to kick in, and 2020. Texas alone would face an estimated
$27 billion in addition costs by 2023. 

The fiscal burden of Medicaid, already the largest budget item
in many states, is only part of the issue. Doctors are also wary of
the program as well, and in Texas and other states, they are
increasingly refusing to participate. According to a Sunday
Associated Press
report: 

Only 31 percent of Texas doctors said they were accepting new
patients who rely on Medicaid, the health insurance program for the
poor and disabled, in the survey provided to The Associated Press
on Sunday. In 2010, the last time the survey was taken, 42 percent
of doctors accepted new Medicaid patients. In 2000, that number was
67 percent.

In addition, most states operate their Medicaid programs under
one or more waivers, and those waivers have to be approved by the
administration. Much of the waiver approval process happens behind
closed doors, but it’s likely that at least some states will use
the threat of opting out as leverage in waiver negotiations.

In the long term, most and perhaps all states may end up
participating in the Medicaid expansion, possibly after negotiating
for waivers that allow them to participate on more preferable
terms. But in the meantime, any states that do choose to opt out
will provide useful comparisons with states that chose to
participate, and allow us to see whether free federal Medicaid
money is actually such a great deal for state budgets.