Medicaid provides poor health care to the populations it is supposed to help, and the spending on the program is driving states to fiscal ruin. Yet the welfare state marches forward. This week, Gov. John Kasich decided Ohio would participate in ObamaCare’s Medicaid expansion in exchange for federal money. He follows other governors—both Republicans and Democrats—who have decided to take the money, whatever reservations they may have about the expansion. Arizona Gov. Jan Brewer, whose state sued the federal government—successfully!—over ObamaCare withdrawing all Medicaid funds from non-participating states, is the most infamous governor to flip flop on Medicaid.
Such decisions should make it clear that the problem is not the players but the game—one thatis rigged to expand the federal welfare state. As Michael Greve explains: “All federal grant [programs] create a fiscal asymmetry: taxpayers in non-participating states will pay ‘their’ share of the program one way or the other. The state as a state can say ‘no’ only to the proceeds, not to its taxpayers’ contributions.” That means declining the funds just leaves money on the table, to no benefit to its own taxpayers. Greve suggests a fix:
Medicaid is somewhere around eight percent of federal expenditures (growing fast). For taxpayers in non-participating states, let’s rebate those eight percent against their income tax returns. Each state could then freely decide whether it wishes to participate in the federal program or rather exit, let its taxpayers keep the rebate, and run a comparable program—presumably on a smaller scale—on its on nickel.
Would that reform wring all the crazed incentives, cross-subsidies, and fiscal illusions out of Medicaid? No, but it would go a long way. Would all states exit? Probably not. But a few might; and in many more, we’d get a more realistic and informed debate about the program—not some burble about “coercion,” but a debate about the costs and benefits of the transfer state. [Liberty Law Blog, February 6; Greve provides a similar diagnosis in his recent article, “But What Kind of Federalism?” The Insider, Winter 2013.]