Michael Meeropol: On Medicaid And The Affordable Care Act

Nov 1, 2013

Today I want to talk about the Affordable Care Act, a.k.a. Obamacare.   No, I am not interested in talking about the computer glitches in the federal exchanges sign up web site.  Instead, I want to focus on the major success in the ACA and a strong effort to sabotage that success.  I am referring to the expansion of Medicaid.

The major goal of Obamacare has been to increase the percentage of Americans who have some kind of health insurance.  The ultimate goal is 100^% coverage but even the most optimistic projects suggested (back in 2010) that 92% coverage would be a great success.   (In Massachusetts, which as virtually the same set-up as Obamacare, the percentage without health insurance is more like 4 percent.)  When the ACA was passed in 2010, approximately 16% of the population had no health insurance coverage.

[FOR DETAILS, SEE http://aspe.hhs.gov/health/reports/2011/cpshealthins2011/ib.shtml]

One problem that may reduce the number of people who can get coverage is the decision by many states to refuse to expand Medicaid.  This decision might appear irrational, since the ACA promises that the federal government will pay 100% of the cost of Medicaid expansion for three years and then 90% of the cost thereafter.  Governor Scott Walker of Wisconsin, one of the most vocal opponents of expanding Medicaid argued that he didn’t trust Congress to make good on that pledge and therefore felt the state would be on the hook for all that extra money if they opted to expand Medicaid today.   By his action, he joins states that include most of the Old Confederacy plus the Mountain West in refusing to allow low income individuals to enroll in Medicaid.  Because the original version of the Affordable Care Act required all states to increase Medicaid enrollment, people who became Medicaid eligible under the act (those with incomes over up to 133% of the poverty level) were not covered by the rest of the law which provided subsidies to people with incomes more than 133% of poverty.  Once the Supreme Court ruled that states could not be forced to expand Medicaid, those states that refused to do so have consigned some of their citizens to a limbo where they are neither eligible for subsidies to purchase insurance nor are they eligible for Medicaid.  According to the Kaiser Family Foundation approximately 5.2 million people will be affected by the refusals from these states.

[FOR DETAILS, SEE http://www.huffingtonpost.com/2013/10/16/obamacare-medicaid-gap_n_4108450.html]

Why would governors (all of them Republican by the way) refuse to permit the expansion of Medicaid as part of the affordable care act?   There are two obvious reasons.  First, if they do permit the expansion of Medicaid, it will be harder to repeal the law should a Republican President be elected in 2016.   Perhaps more important however, there is a perverse distinction often drawn between programs like Medicare and Social Security on the one hand that are supposedly “earned” entitlements – you earn it by paying a payroll tax for a certain number of years – and programs that help the poor like Medicaid.  The latter programs are “means tested” – that is, you have to prove you “need” the program by having an income below some threshold before you can receive the benefits.  Unfortunately, too many people who benefit from Medicare and Social Security fail to see that other entitlements, like Medicaid, Unemployment Insurance, the Earned Income Tax Credit and Food Stamps are just as important for both the nation’s economic health and basic fairness as are Medicare and Social Security.  Thus, they will be seduced by arguments that increasing Medicaid eligibility is just a subsidy for “idleness” and “failure”—that people receiving Medicaid and other means tested entitlements don’t “deserve” them – unlike people who “worked for” their social security and Medicare benefits.

But this distinction is a false one.  Most people who receive Medicare assistance, will end up receiving much more in medical services than their lifetime of payroll taxes will cover.   If we assume that someone averaged $100,000 a year in income (a very high number) and worked for 44 years (from 21 to 65) and paid a full 3% of that entire income into the Medicare trust fund, that number would come to $132,000 in premiums paid over that 44 years.   One major operation and subsequent follow up treatment (forget drug cost) will exhaust all that accumulation of premiums.  The fact is that most of the money current Medicare recipients (including myself by the way) paid over the course of their working lives went to pay the expenses of Medicare recipients when the payroll taxes were being collected.   It’s the same with social security – the systems are pay as you go systems.

Medicaid is the same thing.  When people work, they pay income taxes.  When they have incomes that are too low they qualify for Medicaid.  I for one am very glad I never “won” the lottery of qualifying for Medicaid but I am extremely happy that it is there for me or my children in case we fall on hard times.  (And remember, Medicaid remains a very important safety net for elder care should long term care exhaust personal resources.)

But the most unfortunate part of the refusal to expand Medicaid based on the perverse argument that “those people” don’t deserve it is that in all cases of government entitlement spending – Medicare and Medicaid, Social Security and Food stamps – the most significant beneficiary is the ENTIRE UNITED STATES ECONOMY.   As Howard Sherman and I make clear in our new textbook, when unemployment is as high as it is now (still over 7%) and economic growth is as slow as it is now (less than 2% per year), it is essential to increase government spending thereby putting more money into the pockets of people who are likely to spend it.  This is a perfect example of the economic concept of the multiplier.  Money into the pockets of people receiving either food stamps or social security gets spent on their consumption items which raises the incomes of people selling them things – and those people spend that increased income, and the initial increase in government spending ripples through the economy to raise both the GDP and employment.  Cutting Medicaid or Medicare, Social Security or Food Stamps, in addition to being immoral is also self-defeating.  It will reduce the number of jobs created, perhaps raise the risk of another recession, and ultimately contribute to increases in the federal deficit as tax revenues plummet.  Thinking that cutting Medicaid and Food stamps will stimulate the economy is the equivalent of believing that the Medievil Doctors who attached leeches to patients so as to remove the “sickness vapors” within their bodies had a good idea on how to cure illnesses.  Bleeding the economy with austerity is the exact opposite of what we should be doing.

MICHAEL MEEROPOL is Professor Emeritus of Economics at Western New England University.  He has been a WAMC – FM commentator for 8 years.  His most recent book is (with Howard Sherman) PRINCIPLES OF MACROECONOMICS, Activist vs. Austerity Policies.

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