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Standing on principle can be costly

In the debate over Medicaid expansion, the ace up the sleeve of expansion advocates is federal largesse. The federal health care law requires states to eventually cover 10 percent of the cost of expanding Medicaid eligibility; but for the next three years 100 percent of the cost is covered by the federal treasury.

A 2012 Kaiser Family Foundation study estimates that if all states choose to expand their Medicaid programs it would cost them $80 billion over the next ten years, but they would receive $1 trillion from the federal government over the same period.

If these numbers are all you consider, refusing the federal money looks almost foolish. But there are other important numbers to keep in mind.

Arizona can scarcely afford the Medicaid program we have on the books now. In fact, Arizona has had to cut back on previous Medicaid expansions that became far more expensive than anticipated. When the Medicaid expansion to childless adults up to 100 percent of the poverty level was proposed in 2000, the expansion’s 2008 cost was projected at $389 million. The actual cost to Arizona taxpayers that year was over four times that at $1.6 billion.

Expansion supporters view the federal money as a gift horse. While it may not be completely free, since the states have to put up money of their own, it is simply too much money to turn down. Besides, they say, increased Medicaid coverage will reduce the use of emergency rooms and make up for much of hospitals’ uncompensated costs that we all pay for through increased insurance premiums.

Expansion opponents see the federal money as a Trojan horse. Viewed from a long-term perspective, our national government is already tremendously in debt. This debt will increase exponentially because of the Medicaid expansion. And it will push more national resources into health care, which is heavily subsidized by taxpayers and already consumes a giant 18 percent of our GDP.

Simply put, the health care sector, including hospitals, is not hurting. The health care sector has never seen unemployment exceed 3 percent, even during the depths of the recession. Considering the widely-reported fact that hospital prices are wildly inflated and unrelated to actual costs, and that hospitals are expanding all the time, you have to wonder how much money they are losing. I’ve never seen money-losing industries expand. Beyond that, the biggest users of emergency rooms are Medicaid recipients; expanding the program will only make this worse.

If nothing else, the Medicaid expansion makes state economies more dependent on the federal government. Our economies are increasingly based on the fragile foundation of federal choices, priorities, and funding. This is not a smart position to put the state in long-term.

Standing on principle can sometimes be costly. But here’s a principle worth remembering: If it sounds too good to be true, it usually is. If you were approached by someone promising you nine dollars if you just put up one, you’d know something was fishy. You’d think it must be some sort of Ponzi scheme or an outright lie. This program expansion is a Ponzi scheme. The cost is being foisted onto future taxpayers not yet born. It’s also a lie. Federal money is not free.

— Byron Schlomach, Ph.D., is an economist at the Goldwater Institute

One comment

  1. Jane Horton-Leasman

    If anyone thinks the State won’t be paying the full 100% after the first 3 years, have not kept up with what Obamacare contains.

    How do you think the State of Arizona is going to pay for Medicaid after the 3 year period?

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