Math Over Emotion: Why Governor Beebe Is Wrong on Medicaid Expansion

Medicaid expansion in a picture.

Medicaid expansion in a picture.

When Governor Mike Beebe took to the podium on Tuesday for his “state of the State” speech to the legislature, you might’ve thought you were listening to President Obama. For several minutes, Beebe made the case for expanding the state’s Medicaid program and embracing Obamacare — in an effort to “save money,” of course. The speech was purely emotion. He talked about “kicking the elderly out of nursing homes,” the children, and the disabled. But there are a few problems: expanding Medicaid is a horrible idea and will quite certainly not save Arkansas taxpayers money over the long run.

What Governor Beebe wants us to believe is quite simple, albeit convoluted: the state of Arkansas can “save money” on our Medicaid program by accepting a massive grant from the federal government. This move is commonly referred to as “Medicaid expansion” and, in light of the Supreme Court’s ruling on Obamacare last summer, each of the 50 states is now faced with the decision to accept or reject it. This money from the feds would allow Arkansas to close its approximately $300-$400 million shortfall in the program’s budget and “insure 250,000 more Arkansans,” according to Beebe. It would also free up a large amount of money in the state budget that would then be available for other cuts spending. So what’s the catch? I’m glad you asked.

1. This is a temporary, political fix, not a long-term solution. Accepting this money from the federal government and enrolling as many as 250,000 new Arkansans to the Medicaid rolls will not solve a single problem with the operation of the program. The real problem is not a lack of financing. The real problem is a system that is overloaded with too many people: in 2012, 27% of Arkansas were enrolled in Medicaid. If expansion happens, that number will jump to 35% of Arkansans. We simply cannot sustain this. If Governor Beebe is interested in really fixing Medicaid and preserving it for Arkansans that genuinely need it, he should embrace real reform, not expansion that puts a financial bandaid on a fatal wound. (He can read AAI’s Action Plan for Arkansas for a few ideas on where to begin.)

2. We can’t count on the federal government. The federal government, according to Governor Beebe, is promising to pay for Medicaid expansion — for the first three years. After that, a portion of the costs will be gradually shifted to the state, but the expenses beared by the state “will not exceed 10%,” we are told. So the question is really simple: do you believe them? Do you trust the federal government? And are you, Governor Beebe and legislators, willing to stake the future of our state on their word? Right now the feds can’t pay their own bills (see: national debt clock). Regardless of whether or not the federal government comes thru, the entire charade is a budgeting nightmare.

Once expansion is accepted, thousands will flock to the program. An estimated 25 percent of the uninsured are eligible for Medicaid but not enrolled. Then in three years, as federal funding begins to phase down, we will have to begin to pay for the new enrollees, plus the previously existing enrollees — who we already cannot afford to pay for. All of this results in a more serious budget crisis down the road and a lack of care for those who really need it, but are crowded out by an overpopulated program.

3. It won’t save money. Hearing Governor Beebe and other advocates of Medicaid expansion say that the program will “save us money” is like when my mom tells my dad she “saved him money” by buying a $100 purse that was 40% off. We simply cannot add 250,000 people to our Medicaid rolls and save money. That’s government math and it doesn’t work. Our Medicaid program cost $4.6 billion in FY 2012. Adding 250,000 people cannot and will not save us anything. More on that in a minute.

4. The federal government’s money comes from us. When Arkansas politicians speak of taking money from the federal government, it’s almost as if they think the federal government’s money comes from trees or the Tooth Fairy. Unfortunately, I have bad news: it comes from us. It comes from hard-working Arkansas taxpayers. When we take money from them and spend it — money they do not have, I remind you — we are essentially taxing ourselves. After all, spending is simply a different form of taxation. Taking money from them now simply means Arkansas taxpayers will have to give it back to them later. There’s no such thing as free money.

5. Last but certainly not least: we cannot afford it. Perhaps this point is redundant, but it merits repeating. In 2020, the state of Arkansas will supposedly bear “only” 10% of the cost of Medicaid expansion. But just one problem: we cannot afford to pay for the people we currently have enrolled. How will we pay for 250,000 more?

According to the Arkansas Department of Human Services, in Fiscal Year 2012, the state of Arkansas spent $4.6 billion for 795,889 Medicaid enrollees. That works out to about $5,915 per person. Assuming the costs per person remain constant — they have risen consistently over the last ten years — the cost will be an additional $1.48 billion. Assuming the federal government keeps its promise and pays for 90% of that cost, the state of Arkansas will be responsible for close to $148 million in additional Medicaid spending.

For some perspective, keep in mind: the entire state budget of Arkansas for FY 2012 was $24.2 billion. $19.6 billion comes from the federal government. Only $4.6 billion of that comes directly from Arkansas general revenues. This means that in FY 2012, we spent the entire amount of our state revenues on Medicaid. If expansion happens, we’ll spend our entire general revenues plus a few more billion. Where will the money come from?

You and I know the answer: in 4-5 years, if expansion is embraced, politicians will begin to tell us that we have yet another Medicaid crisis and the only way to pay for it — and keep from kicking granny out of the nursing home — will be to raise taxes.

I’ll have more on Medicaid — including some suggestions for free-market based reform — in the next few days. But in the meantime, the worst thing conservative legislators can do is cave or compromise on this issue. Doing so will mean more pain suffering down the road. At some point, emotion and rhetoric have to be overcome by simple arithmetic. That time is now. Arkansas politicians should stop kicking the proverbial can down the road and govern. We’ll all be better off in the long run — especially those who need Medicaid.

Comments

  1. Louis De Lisle says:

    Just where do you think the government is getting this money? from the tooth fairy ? If Arkansas doesn’t have it, which state is going to give it to us? OOOOHhhh print some more! yes and tax the businesses and their owners! wonder where they get the money? Guess! No name calling or I could go on for at least two pages.

  2. Don Wheatley says:

    Free Medicaid Money will be just like Free Food Stamp Money. People of Arkansas, get
    a life. This MONEY IS NOT FREE. Someone has to pay for it and that someone is US.

  3. In this same vein, why is using one time surplus money to plug this year’s hole better than expanding medicaid? You assume certain things to be true and manipulate them in such a way as to bolster your argument. Yet, you have used nothing from the exhaustive reports dealing with the facts of the matter. What I have read is primarily opinion with little valid, factual supporting information. So, where does this actually get us in making a determination as to what is best for the citizens of Arkansas?

    • Nic Horton says:

      Forgive me sir, but I have little to no idea what you take issue with in my piece. I’ve made my case and laid out facts in support of my position. What is your position? What facts do you have to support it? Do you think Arkansas can save money by adding 250,000 people to the Medicaid rolls? What I have read from you is primarily opinion with little valid, factual supporting information. Really, I’m all ears. NHH

  4. Mr Nick,

    We need to be sure we make one thing clear. We have two totally distinct Medicaid issues here. One, the shortfall and two, the expansion. The Governor and others want to blend this issue, however the two are in no way connected. All of the new Fed expansion money goes to new state obligations. None of that money would cover our shortfall (which the latest numbers have under $100 million), we will still need to find a way to cover the shortfall ourselves. The pro expansion people use “new math” and failed Keynesian philosophies to say that the new revenue will stimulate the economy and increase tax revenue to fix our medicaid problems. You know the “we got to spend money to save money” concept.

    • Nic Horton says:

      Rep. Ballinger, you make an excellent point — and one that deserves more attention. NHH

Trackbacks

  1. [...] response to my piece last week about the perils of Medicaid expansion, I received an email from Rep. Reginald Murdock [...]

  2. [...] has a new piece out about the perils of Medicaid expansion — and it’s almost as good as mine. The piece was featured in the latest edition of Talk Business. Here’s a [...]

  3. [...] so we should probably just declare victory and move on to other more meaningful tasks, like entrapping 35% of Arkansans in the Medicaid program. But, just in case that ranking is wrong and, I dunno, we’re actually 34th in [...]

  4. [...] back on planet earth, I have offered some reasons why I think Medicaid expansion is the wrong choice for our state. (And for some analysis from a real genius — a guy that gets paid to think [...]

  5. [...] additional information on Medicaid, you can read my article on why the state should reject expansion and what reforms we should seek to implement to put the program on a sustainable path. Also, check [...]

  6. [...] and Democratic policymakers, but there’s been very little attention paid to the real cost. I have previously written that the expansion could cost Arkansans up to an additional $148 million per year. Now, the [...]