Medicaid and Health Reform

Kevin Sack and Robert Pear reporting for the New York Times raise a non-crazy worry about the health reform legislation before the congress, gubernatorial concerns that Medicaid expansion will wreak devastation on state budgets. My go-to guy on Medicaid issues says the House bill handles this concern fairly well, but that the Senate legislation is less clear. And certainly when you become very concerned with slightly arbitrary metrics like CBO scores across a 10-year window rather than with overall fiscal responsibility, it creates incentives to craft legislation that shunts costs onto the states thus “hiding” them from the prying eyes of the scorekeepers.

To the best of my knowledge, the large state role in Medicaid is extremely ill-advised. In general in the United States you get better “quality of government” at the federal than at the state level. And in macroeconomic terms, state Medicaid responsibilities tend to work as “automatic destabilizers,” increasing burdens on state government just when the states can’t afford to spend money. In an ideal world, you’d see a much larger federal role in Medicaid and this would reduce the severity of recessions and in general reduce the need for contentious debates about stimulus bills. You’d also almost certainly get better health care coverage for poor people in most of the country.

But even though switching the financial responsibility from the state to the federal level wouldn’t involve any net change in the tax burden or the size of the public sector, it would “look like” a big increase in taxes and spending. So that’s obviously off the table for now. But something to keep an eye on during the health reform debate is that while Medicaid expansion is good, mandated increases in state-level Medicaid expenditures are pretty questionable policy. Better to have the federal government pick up the bulk of the tab for expansions.