NCPA - National Center for Policy Analysis

Should States Opt Out of Medicaid?

December 2, 2010

Some states are complaining that the massive expansion of Medicaid under the Patient Protection and Affordable Care Act (ObamaCare) will impose so many new costs and regulations that they are considering opting out of the 45-year-old program, says Merrill Matthews, a resident scholar with the Institute for Policy Innovation.

That would be a big step, one that no state has ever taken.  Is it advisable?  Not if there is a reasonable way to resolve the current fiscal and regulatory challenges.  Is it doable?  Probably, but it would mean big changes.

  • Nearly 50 million Americans rely on Medicaid for their health insurance, disability coverage and long-term care needs.
  • Because the federal government subsidizes between 50 cents and 76 cents of every Medicaid dollar spent, many states have significantly expanded the basic coverage.
  • However, at $340 billion (2008) annual state and federal spending, it is one of the biggest budget items in most states, and growing.

And yet Medicaid is the worst run health insurance program in the country because, like any government-run health plan, politicians manipulate it -- for example, by extorting money from participating drug companies or cutting reimbursements to balance the state budget.  Doctors' fees are so low that patients have trouble finding one who will treat them.  In addition, Medicaid is riddled with fraud, perhaps between $40 billion and $60 billion a year, says Matthews.

States are concerned they will be hard pressed to cover their future Medicaid obligations without cutting education or other important budgets, which is why they're exploring an opt-out.

States considering a Medicaid opt-out should keep up the pressure on Washington.  The best result is that Congress addresses Medicaid's problems, block granting it and giving the states more flexibility.   "Going rogue" on Medicaid should be the very last resort, but keeping the threat alive may be the best way to get what they really need, says Matthews.

Source: Merrill Matthews, "Should States Opt-Out of Medicaid?" Forbes, November 29, 2010.

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