S.C. Medicaid expansion: Consequences and costs

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The S.C. General Assembly will soon take up the question of whether to expand Medicaid eligibility – and, like so many things in the world of government and politics, what sounds like a great idea is actually a terrible one.
The U.S. Supreme Court’s late June ruling on the Patient Protection and Affordable Care Act, more commonly known as Obamacare, stipulates that states will have the option of expanding Medicaid eligibility to those with incomes up to 133 percent of the poverty line, or about $25,400 for a family of three. While Gov. Nikki Haley has come out publicly against the expansion, a substantial number of state lawmakers favor it.
So, what would be the financial effects on our state budget if Medicaid eligibility were to be expanded?
For the first three years starting in 2014, the federal government will cover 100 percent of the cost for states’ Medicaid expansion, while dwindling that percentage to 90 percent within the decade, leaving states accountable for 10 percent of the cost. Through 2022, the expansion will increase states’ spending by 2.8 percent, compared to what they would be spending without it. The expansion would increase federal Medicaid spending by $931 billion and state Medicaid spending by $73 billion. Further, the Heritage Foundation notes that Obamacare’s federal matching funds will not include the increase in administrative costs (5.5 percent on top of Medicaid spending) that will come along with the expansion of Medicaid – states will pick up the tab for these costs, too.
According to the Kaiser Family Foundation, South Carolina has relatively modest coverage today, meaning that the state will see “very large overall (federal and state) increases in spending relative to the current Medicaid base.” Kaiser’s study projects that from 2014 to 2019, South Carolina would see a $470 million (3.6 percent) increase in state spending and $10.9 billion (36 percent) increase in federal spending on Medicaid.
But if the federal government is paying for such a large portion of the increase, why not take advantage of it?
That’s a fair question, but bear in mind that South Carolinians pay federal taxes, too. The continuously growing $16 trillion-plus federal debt isn’t just a federal issue; it affects South Carolinians as much as it affects the citizens of other states. An expansion of Medicaid would mean an expansion of the national debt and of the state budget, leaving taxpayers liable to pay for it – not just now, but for generations down the road.
Although the federal government would be paying 90 percent of the tab by the end of the decade, the $470 million increase in general fund spending through 2019 that South Carolina would have to pay for is hardly insignificant.
Remember, it was only two fiscal years ago that our state hid a $220 million Medicaid deficit; this increase in spending will make it even more difficult to keep out the red ink in the state’s Medicaid budget. With some of the highest sales tax and income tax rates in the nation, South Carolinians are already overtaxed, and an expansion of our state budget’s responsibilities will only add to that burden.
It’s important to remember, too, that well over a third of the state’s $26 billion budget comes from the federal government, and all those dollars come with “strings attached” – in education, health care, energy policy, economic development and welfare spending. Any time we accept a dollar from Washington, D.C., for state programs, the federal government gains that much more power over how we operate those programs. By accepting yet more Medicaid money, South Carolina policymakers will be ceding more control over welfare policy to bureaucrats in Washington.
Nor is there any merit in the claim made by, among others, the S.C. Heart Association, that accepting more Medicaid money would “create 44,000 new jobs.” If spending federal dollars could create real private-sector jobs in South Carolina, our state’s unemployment problem would have been wiped out a long time ago. And in any case, the fact that the proponents of Medicaid expansion have fallen back on the jobs argument looks awfully suspicious. This should be about health care and its costs – not jobs.
As was the case with the federal stimulus bill in 2009 – the $800 billion federal spending plan that somehow didn’t stimulate anything, an expansion of Medicaid money may seem like a great idea now. But in the long run, we’ll all pay the price.