Here's why Texas must not opt out of Medicaid

From the editorial pages of today's New York Times:

Texas and several other states are flirting with the idea of dropping out of the Medicaid program and trying to shift most of the burden of providing health insurance for the poor to the federal government.

The idea appears to be driven at least as much by ideology as economics: Republicans’ fierce opposition to President Obama’s health care reform and their insistence that state budgets can be balanced solely by cutting services, like Medicaid, rather than raising taxes.

The idea originated with analysts at the Heritage Foundation, a conservative research organization based in Washington. They argue that many states would be irresponsible not to drop Medicaid in 2014 and direct poor residents to buy commercial insurance on new competitive insurance exchanges, where they would receive generous federal subsidies. A Heritage analyst believes that 40 states and the District of Columbia could save money this way and estimated that Texas could save $46.5 billion between 2014 and 2019.

That may sound great. Even assuming it is legal — a big question — at the core, this would amount to a shell game. It may save money for some state budgets but only by driving up costs for the federal budget and for the poor enrollees, who would have to pay more for commercial policies even with the federal subsidies.

And for all of the me-firstism out there, state taxpayers need to remember that they are also federal taxpayers. Even if their state drops Medicaid, they will continue to pay taxes that support the subsidies in the insurance exchanges and Medicaid programs in other states.

There is no question that Medicaid is badly straining many state budgets. And state leaders need to do a lot more to make their systems more efficient and reduce waste and abuse. The burden, and the need for reform, will undeniably grow under health care reform because the states will have to enroll many adults not previously covered and allow people with somewhat higher incomes to enroll.

The federal government, however, will pay for most of that increase — 100 percent of the cost for newly eligible enrollees for three years and at least 90 percent ever after, as well as 90 percent of the added administrative expenses. Despite that largess, the Texas health agency estimates the state will have to spend $27 billion of its own money over a decade. Outside experts are skeptical of those numbers.

Before any more politicians get excited about the opt-out idea, they need to consider several basic issues.

First, none of these maneuvers will help states meet their current budget crises. The exchanges won’t exist until 2014, by which time state revenues will probably have picked up.

Even more important, no one seems certain whether the federal government can even legally pick up the Medicaid burden, or would be willing to. One provision of the reform law indicates that the poorest people on Medicaid — those earning less than the federal poverty level — could not receive subsidies on the exchanges; a separate table implies that they might be eligible. If that issue is not clarified by federal officials, it may have to be resolved in the courts or Congress.

Large numbers of people, mainly low-income elderly and disabled patients who need long-term care services, would not be eligible to buy insurance on the exchanges. These are the two most expensive groups to cover, and the cost of their care would fall solely on the state. It is conceivable that a state with small enrollments of these groups might be able to shoulder the whole burden; states with big enrollments ought to be wary about relinquishing federal matching funds.

Medicaid is also so intertwined with multiple parts of the health care system that political leaders will need to be wary about harming a wide range of medical institutions that depend on Medicaid reimbursements.

Despite all of the campaign rhetoric, there are no easy fixes out there.