NCPA - National Center for Policy Analysis

Why Rick Perry Made the Right Call on Medicaid

July 27, 2012

The Affordable Care Act tries to force the states to expand Medicaid to cover most people with incomes up to 138 percent of the federal poverty level. Originally, the law threatened to end federal Medicaid funding altogether for states that failed to comply with the expansion. The Supreme Court, however, ruled that this threat is unreasonably coercive. As a result, the states have several choices, say John C. Goodman, president of the National Center for Policy Analysis (NCPA) and a research fellow with the Independent Institute, and Devon M. Herrick, a senior fellow with the NCPA.

When Texas Governor Rick Perry exercised his options and announced his opposition to expanding Medicaid, the negative reaction was almost immediate. However, his decision may have been influenced more by financial concerns than mere political posturing.

  • Approximately 900,000 uninsured Texans are expected to have incomes between 100 and 138 percent of the federal poverty level in 2014.
  • If Texas doesn't make them eligible for Medicaid, the federal law will give them another option: private insurance in a health insurance exchange.
  • Texas could pay the enrollees' share of the premium to encourage their enrollment in the exchanges (it cannot exceed 2 percent of their annual income) and still spend less money than it would under Medicaid expansion.

If the state adopted this policy route and followed through with pushing its poorer residents into the exchange, it could mean a great deal financially.

  • If approximately 70 percent of the newly eligible choose to enroll and Texas does not expand Medicaid, the state will forgo about $45 billion in federal Medicaid money over the next 10 years.
  • To offset that loss, however, Texas families will gain generous federal subsidies for private insurance -- resulting in approximately $65 billion in additional health care spending.
  • This $20 billion difference represents an additional infusion of $2 billion per year, including extra money for the state's doctors and hospitals.

In addition, if low-wage workers had decent private coverage available through a health insurance exchange, employers would not have to offer health insurance in competition for labor. Instead, they could pay higher wages, resulting in higher take-home pay.

Given these enormous advantages, it stands to reason that the Texas governor might have made the correct and responsible decision in rejecting the expansion of Medicaid.

Source: John Goodman and Devon Herrick, "Why Perry Made the Right Call on Medicaid," Dallas Morning News, July 25, 2012.

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