ACA: self imposed redistribution from poor to rich states

At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare, and 21 have rejected expansion, while 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones).

According to an analysis I have done using Kaiser Family Foundation data–in 2016 alone–the 24 expanding states will receive $30.3 Billion additional federal dollars, while those not expanding will forego an additional $35.0 Billion they could have had (the fence sitters have an aggregate $15.2 Billion at stake in 2016). This represents a huge redistribution of federal money from non-expanding to expanding states. The table below highlights the biggest self imposed losers, and winners, again for 2016 alone (there are predictable impacts on state uninsured rates).

ScreenHunter_04 Oct. 25 14.45

Note: total is for all states in foregoing & gaining group.

Most states will also have increased spending if they expand Medicaid; for North Carolina, in 2016 Kaiser estimates that the state will have to spend $390 Million to leverage around $4 Billion in extra federal money, and reduce the ranks of the uninsured by around 375,000 persons (about 475,000 more would be covered by Medicaid). To put the foregone $4 Billion in context, North Carolina’s total Medicaid budget in fiscal year 2014 is around $14 Billion, and there is certainly no alternative proposal as impactful on the uninsured in my state at any cost.

States that are not expanding Medicaid have historically received more in federal spending per dollar of federal taxes paid by the state ($2.18) as compared to States that are expanding ($1.85) and those that are considering expansion ($1.53), all in 2009, a year with a very large federal deficit. In year 2000, the last year of a federal surplus, those states rejecting expansion received $1.36 in federal spending per tax dollar paid as compared to $1.10 for those undertaking expansion (the fence sitters were net donor states, $0.87). Similar patterns held in both 1994 and 2004 (other years shown in this table I put together using IRS & Kaiser sources Tax Flows Table.10.25.13_blog).

While the Medicaid program is not the only means through which richer states have cross subsidized poorer ones, it has been a large and consistent source of such flows. By choosing not to expand Medicaid, the poorer, mostly politically “red” states are redistributing money toward the richer, mostly politically “blue” ones (there are exceptions; red Kentucky is both expanding Medicaid and has one of the best functioning State exchanges). Further, those States that are expanding Medicaid have also tended to set up state-based insurance exchanges, which are currently operating much better than the federal one, meaning that income based subsidies associated with the purchase of private health insurance may flow less freely to poorer states, at least in the short term. And there is a court case that could stop the flow of such subsidies to states not operating their own exchange all together. I have not tried to estimate the magnitude of these sources of redistribution from poor to rich states under different scenarios because things are so fluid, but the Medicaid numbers outlined are potentially just the start.

The bottom line is that if the current State Medicaid expansion decisions persist, the unintended story of the ACA will turn out to be the redistribution of money from poorer States, to richer ones, an outcome imposed by the poorer states, upon themselves. I will write more about what I think this means for the future of health reform over the next few days.

Sources

Note: I was assisted by excellent research assistance from Callie Gable, a Duke Undergrad. Any errors are my responsibility, however.

The cost of States not expanding Medicaid. Kaiser Family Foundation, July 2013.

Internal Revenue Service (IRS) report Internal Revenue Gross Collections, by Type of Tax and State, for Fiscal Year 2009

Internal Revenue Service (IRS) Federal Funds – Summary Distribution, by State and Island Areas : 2009

About Don Taylor
Associate Professor of Public Policy at Duke University and author of Balancing the Budget is a Progressive Priority. On twitter @donaldhtaylorjr

13 Responses to ACA: self imposed redistribution from poor to rich states

  1. Sherry Moore says:

    I respectfully disagree. I suppose the author can be excused for his bias and not considering the medium to long game. Putting aside pro Obamacare ideology, lets consider what a rational actor in this economy would really do by looking at the demographics of this. I have looked at several different breakdowns of the income of voters in the 2012 presidential election. The Vast majority of those that would fall under the Medicaid expansion vote democrat. In fact, it’s only when we hit the $45000 to roughly $55000 range do we see the numbers tilt republican. So if you are a republican governor with an election in two years, this is an influencing factor because if the neighboring states DO have the Medicaid expansion, why on earth encourage people who will not vote for you to stay put? A reasonable head of household in a non Medicaid expansion state is more likely than not to migrate to a state where they can receive these benefits, as opposed to nothing, or paying anywhere between an additional $250 to $1200 a month for mandatory coverage ( the anecdotes from the MSM, as well as healthcare dot gov’s Facebook page reflects this.

    Moreover, low incomes correlate with use of other state benefits an entitlements. There is also a stronger correlation for drug use, unplanned pregnancies, crime via a vis income.

    Based on the demographics of the population that would qualify under Medicaid expansion, it makes sense that a Republican governor that does not have a 2014 election, would choose not to opt in. As mostly democrat voters migrate to neighboring Blue states, the Governors enjoy the twin advantages of a more amenable voting pool, while reducing the strain on state entitlements. So rather than seeing the acceptance of Medicaid expansion as a wonderful opportunity, perhaps the author should consider the benefits of “no”.

    Indeed, more troubling for Democrats is who Obamacare affects the most in the wallet. If one correlates the most effected in terms of premium increases with voting demographics, it’s very bad news for democrat politicians. Simply look at the voting demographics for the 2012 presidential election and whip out your Kaiser calculator. SURPRISE ! You guessed it, those who voted blue get a slap to the face. Every month as either they pay the ACA Albatross or worry about the IRS fine, they will remember who put them in this position. As usual, the Democrats excel at being on a roll, then blowing up their own clown car while the GOP chases its tail. I suppose this is a direct result of not reading something before you sign it.

    • swampwiz says:

      Of course, someone who is poor enough to go on Medicaid is probably too poor to move. I guess Sherry’s idea of state experimentation is to let some be beacons of higher civilization while others revert to a medieval one where life is nasty, brutish & short. NOTE: I edited out a portion of this reply that was inappropriate. Negatives comments targeted at other commenters will not be allowed to go through (Don Taylor)

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  3. Dave Sjolin says:

    The professor demonstrates why academics should stick to brainwashing the young and not get into public policy debates. They lack basic common sense.

    The professors fatal fallacy is that regardless of what the red states do, the blue states are not getting any more for Medicaid than they would have gotten otherwise. Money is not being transferred from red to blue. Maybe the red state refusal leaves billions for the Dems to waste on something else or God forbid reduction in the deficit/debt but it has no impact on their Medicaid funds.

    Why should Republicans in red states support ObamaCare, a law they believe is bad for America, just so that Dems can give more free stuff to their voters. If the Dems really wanted to give free health care to the poor, Dems they should have made it a Federal project and not a hybrid Federal/State monstrosity..

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  5. charles.schoonover1@gmail.com says:

    The Federal Government spends more than $3.6 trillion per year and is only open about about 1800 hours per year (not counting Holidays, Evenings, Saturdays and Sundays: HESS). SO the Federal Government spends about $2 billion per hour !!! So $30 billion to 24 states is about 1% of 1% of 1$%…… So it is very foolish to consider anything of this magnitude to be a ‘huge redistribution’.

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