This past Monday evening, I spoke on a panel at Wake Forest University’s School of Law on whether North Carolina should expand Medicaid, the medical assistance program originally designed for low-income parents, children, elderly, blind, and disabled. Despite the enthusiastic, overwhelmingly pro-expansion crowd (and expansion-leaning fellow panelists), I was pleased to be given the chance to state my case as to why Obamacare’s Medicaid expansion presents some very real long-term fiscal and human costs for the state. In this week’s newsletter, I give you the fiscal impact. You can watch the full presentation here.

Before delving into the financing of Medicaid expansion, it’s important to have some insight into today’s program. Medicaid itself is projected to cost North Carolina over $4 billion for the 2015-16 fiscal year. That’s just the state portion. Since Medicaid is funded by North Carolina and Washington, the program is actually a $14 billion behemoth. Medicaid has historically been one of the fastest growing line items of North Carolina’s budget. While North Carolina has not opted for expansion, enrollment has surged by 21 percent over the past two years.

Medicaid is bankrupting our nation. This is in large part due to the program’s perverse financial design. For every $1 North Carolina spends on its Medicaid program, it triggers almost an additional $2 from the feds. The open-ended match rate strongly incentivizes legislators to push for additional coverage options and extended eligibility since the feds cover a majority of the tab. On the flip side, Medicaid’s flawed funding is just as much of a disincentive for states to scale down on the size of their programs, since a majority of savings accrues back to Washington.

If North Carolina were to expand Medicaid eligibility for those under 138% FPL ($16,000 for an individual) who currently do not qualify for the program — 82% are able-bodied, childless adults — the federal government promises to fully fund the cost until 2017. At that point, states will take on some of the financing, maxing out at 10% starting in 2020.

In the short-term, this is a tempting deal for states to take — especially since President Barack Obama has recently offered non-expansion states an additional three years of full funding. To date, 31 states have already gone forward with expansion. Since it seems like more states are catching the “everyone’s doing it” mentality, why hasn’t North Carolina?

Starting in 2020, expansion would cost North Carolina $6 billion over the next decade. That comes out to an extra $600 million per year. In the long-term, this will either lead to a reduction in provider payments, diverting resources from other important parts of the budget such as education or transportation, or tax increases.

Despite what expansion proponents say, North Carolina is NOT leaving $5 million a day on the table by opting out of expanding. According to the Congressional Research Service (CRS), when Congress drafted Obamacare, a pot of money was not allocated for Medicaid expansion. Rather, the reality is that an influx of federal funding would merely be adding to the federal deficit — taxing future generations and their children.

Expansion advocates cite numerous studies suggesting that federal funds pouring into the state would help create upwards of 40,000 jobs in the health-care sector. The thinking that Medicaid is now turning into a jobs program strays away from its original purpose — a health insurance program for our most vulnerable citizens. Katherine Baicker, health economist at the Harvard School of Public Health, explains:

Salaries for health care jobs are not manufactured out of thin air — they are produced by someone paying higher taxes, a patient paying more for health care, or an employee taking home lower wages because higher health insurance premiums are deducted from his or her paycheck. Additional health care jobs leave Americans with less money to devote to groceries, college tuition, and mortgage payments, and the U.S. government with less money to perform all other governmental functions — including paying teachers, scientists, and social workers. That trade-off can be justified if it goes along with improved health outcomes, but not if those jobs do not generate benefits that exceed those of alternative uses.

Lastly, evidence indicates that expanding public health insurance programs further increases the cost of private health insurance and crowds out private health insurance. Crowd-out will happen under expansion, in which 186,000 North Carolinians currently benefiting from a heavily subsidized private health coverage plan on the exchanges will be thrown onto Medicaid. The heavier the caseload on Medicaid, the more providers will have to make up for being paid below market levels by negotiating higher payment through private carriers.

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