ACA: self imposed redistribution from poor to rich states
October 26, 2013 12 Comments
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).
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.
Note: I was assisted by excellent research assistance from Callie Gable, a Duke Undergrad. Any errors are my responsibility, however.