Opinion Column

The Texas Medicaid Scenario — Why It’s Never Going To Happen

Flush from their midterm victories, conservative lawmakers around the country are musing about whether their states should withdraw from Medicaid. The talk sounds most serious in Texas, where the idea receives favorable mention from Republican Gov. Rick Perry and from leaders in the state legislature. As the Star-Telegram reports:

“We know how to deliver healthcare to more people in a less expensive way than what the federal government does,” Perry said in Dallas last week while promoting his new book, Fed Up! He said states “need to stand up and say, ‘We don’t want your strings attached. We don’t want you down here telling us how to run our business.’”

Meanwhile, liberals charge that Perry would balance public budgets by cutting essential services to poor people.

When I first heard about this controversy, I noted one simple fact that deserves greater play: This is not going to happen. Withdrawing from Medicaid would be political suicide. Despite post-election bluster, no governor or legislative majority will seriously attempt such a politically, administratively and economically preposterous maneuver.

For many reasons, this proposal resides within the realm of thought experiments and ideological gestures. Still, like other such ideas, the discussion it triggers is instructive.

Withdrawing from Medicaid would be political suicide, not merely because it would anger poor people, or because the heads of the Texas Medical Society and the state’s nursing home association have lambasted the idea, or even because Texas would give up the $15 billion it receives annually through its 60+ percent federal Medicaid match. This would be political suicide for two other reasons one might overlook.

First, withdrawing from Medicaid would create administrative chaos. Many hospitals would go bankrupt if a large chunk of their patients lost public coverage. Suddenly transitioning these patients from Medicaid into health insurance exchanges or into some other, as-yet unspecified program would create a host of other challenges and unintended consequences. For instance, medical and social service providers have spent untold sums developing the capacity to comply with Medicaid requirements and procedures. From a purely organizational perspective, withdrawing from Medicaid would be much more radical than this year’s health overhaul.

Second, stereotypical poor people would find that they had a surprising amount of company as they stormed the statehouse to scream at whoever messed with their Medicaid benefits. Although the majority of Texas’ Medicaid recipients are low-income women and children, most of Texas’ Medicaid dollars go to the elderly and the disabled.

My University of Chicago colleague Colleen Grogan notes that Medicaid is a central component of the medical safety-net for middle-class people. It finances care provided to our aged parents, disabled friends, neighbors, and sometimes children or siblings who might need a wheelchair, a visiting nurse or other help. Two-thirds of Texas’ nursing home patients rely on Medicaid. These men and women represent a broad cross section of the Texas community. Autistic youth receive Medicaid financed services in school. Intellectually disabled adults receive Medicaid-funded services in group homes and sheltered workshops. Much of the real cost growth occurred in services to such sympathetic and connected constituencies.

There is talk that Texas might carve up its Medicaid program, sparing the most politically secure constituencies, while curbing benefits for nondisabled low-income adults, children and maybe pregnant women. The legal foundations of this maneuver seem dubious. Even if some way were found to accomplish this task, it would defeat the purpose of saving the state money. Texas Medicaid would retain the most costly patients and leave on the table generous amounts of federal matching funds that would otherwise finance much of the health care provided to these populations. The federal government will pay virtually the entire Medicaid tab for people made newly-eligible under the new health reform law, for example.

I don’t see Texas turning this money down, particularly when it faces something like a $21 billion two-year budget gap.

Though this thought experiment is impractical, it suggests some lessons. Michael Tomasky notes the disjunction between Americans’ professed belief in limited government and our actual support for specific programs to protect people we care about. Once we acknowledge this reality, we might ask whether we provide this protection in a way that is genuinely effective and sustainable.

State Medicaid programs are in trouble. They cause trouble, too. Medicaid’s state-federal partnership was a defensible financing structure in 1965 when per-capita health spending was much lower, and when Medicaid itself was a much narrower program. States can no longer carry the load. Thus, many implement Medicaid badly and begrudgingly, while growing Medicaid burdens crowd out key services such as education and even public health. Rather than force states to do something they will not do well, Washington should plot a different course.

Ironically, Republican governors and President Obama share common ground. The governors criticize federal policies that burden the states. The president notes that sound policy and basic decency require steps towards universal coverage embodied in health reform. Federalizing the Medicaid burden, as Greg Anrig proposes, is essential to stabilizing state budgets and providing more humane and sustainable health policies.

From this perspective, health reform remains flawed, not because it overstepped, but because it stopped short of what really needed to be done.