The Hindenburg -- what happens to unsustainable bloat
by James A. Bacon
Thanks to the Supreme Court ruling on Obamacare, Virginia now faces the choice of whether or not to expand its Medicaid program. We are sure to hear many arguments along the line of Judy Solomon with the Center for Budget Priorities that Medicaid expansion is a “good deal for states.” She makes three key points:
- The Congressional Budget Office estimates (assuming all states implement the expansion) that the federal government will bear nearly 93 percent of the costs of the Medicaid expansion over its first nine years.
- The additional cost to the states represents only a 2.8 percent increase in what states would have spent on Medicaid from 2014 to 2022 in the absence of health reform.
- Moreover, this 2.8 percent figure overstates the net impact on state budgets because it does not reflect the savings that state and local governments will realize in health-care costs for the uninsured.
The state cost share of extending Medicaid to the near-poor will escalate to 10% by 2020, with the result that the increase in state spending will be considerably higher than 2.8% after that date, but it still will be a bargain compared to the nearly 50% share Virginia pays for the existing Medicaid population. The program will pump billions of dollars into Virginia’s economy and, by providing coverage for people whose treatment was often written off as uncompensated care, it will reduce pressure on hospitals and other providers to shift costs to privately insured patients.
Thus, from a pragmatic, short-term perspective, the argument for participating in the Medicaid expansion is a powerful one. We can expect people to assert that only people who are consumed with hatred for President Obama could possibly oppose it.
But the choice is not a simple one at all. Virginians must ask: How long will the federal government be able to maintain its commitment? Given the current fiscal trajectory of the federal government — $15.9 trillion in debt, a tepid economic recovery made even more wobbly by a weakening global economy, and trillion-dollar deficits as far as the eye can see — federal entitlements are unsustainable. If Congress doesn’t move first to pare back entitlements, federal spending will collapse when capital markets stop funding deficit spending.
When federal spending is curtailed, either voluntarily or involuntarily, how likely is it that the government can sustain its promised Medicaid payments? What are the odds that Uncle Sam will stick the states with a bigger share of the bill? And once the new entitlement has been created, how willing will the General Assembly be to cut off hundreds of thousands of Virginians from the program? It is far easier to say, “No,” before the program is ramped up than after the near-poor, some of whom have private insurance, has become dependent upon government largesse.
As the nation hurtles toward Boomergeddon, it is folly to increase the size and scope of the entitlement state. President Obama and his philosophical allies may have won the Medicaid-expansion battle at the national level, but that is no reason to replicate the fiscal lunacy at the state level. The only sustainable way to expand health care coverage is to drive down the cost of delivery, and the only sustainable way to drive down the cost of delivery is to aggressively pursue gains in provider productivity and patient outcomes.
We need a thorough vetting of all the issues. I can see the short-term advantages of expanding Medicaid but I fear the long-term consequences.
Northern Virginia population growth is slowing, and the prospect of restrained federal government spending — if not an outright collapse in federal spending — will reduce the demand for workers and all the housing, office and retail infrastructure that supports them. The experts have trimmed their growth forecasts in recent years, as can be seen in this chart published in a previous post. (See “
