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Budget, Chairman's Message, Maryland, Medicaid

Maryland’s Coming Medicaid Cost Crunch From Obamacare

Posted: December 15, 2012 at 5:53 am   /   by   /   comments (0)

This past Friday was the deadline for states to decide whether or not to establish their own state health exchanges beginning next October under Obamacare.  Their alternative is letting the Federal government shoulder the burden itself.  Only 18 states are prepared to do so, leaving the remaining 32 states to use exchanges run either entirely by the federal government or through a federal-state partnership.

In staying out of the healthcare exchanges, states avoid regulations promulgated by HHS that give states no meaningful flexibility or advantage by operating their own exchanges, relative to a federal exchange.  Those states would simply be acting as vendors to HHS.

However since Martin O’Malley is our Governor, naturally Maryland has decided to rush ahead no matter what the cost may be.  Already one set of projections finds that new taxes and fees will be necessary to fund Maryland’s state’s exchange because annual administrative costs in 2015 will be $201 per enrollee.[1]

Higher administrative health insurance costs are only the tip of the iceberg of increased costs Marylanders face under Obamacare.  Earlier this year on the campaign trail President Obama was still claiming that health exchanges would lower health care premium costs.  I say “still claiming” because the Washington Post’s fact checkers” gave his lower costs claim a decided “thumbs down,” citing in part data that Maryland individual health care premiums will go up on average by 34 to 36%.[2]

When Obamacare was passed, Democrats assumed that they could simply force states to open exchanges and to expand Medicaid to pay for expanded coverage.  Although the Supreme Court ruled that the individual mandate was constitutional as a “tax,” the court also very significantly ruled the Medicaid expansion was entirely voluntary for the states.  This aspect of the decision gives states leverage to avoid Obamacare’s Medicaid cost, control, and coverage burdens.

As a carrot to entice states to implement Obamacare, the Federal government offers temporary funding support to the states.  However beginning in 2020, states will begin to shouldering an increasing share of the Obamacare burden.

Speaking on behalf of other Governors that have rejected the Medicaid expansion, Louisiana Gov. Bobby Jindal, said: “The Obama administration’s refusal to grant states more flexibility on Medicaid is as disheartening as it is short- sighted.  The current Medicaid system is broken, and it is an inefficient mechanism for expanding coverage.”

The potential future budgetary burden facing Maryland could be larger.  If the majority of states continue to opt out of the healthcare exchanges and the Medicaid expansion, then Congress is likely to shift an even larger share of costs back on the few participating states.

Marylanders have seen this movie before and therefore should be forewarned about how it will turnout. Already growing Medicaid spending has been a significant driver of the State budget, from $3 billion per year in 2000, to $7 billion in 2012.  The 8% annual compound growth rate is well above the rate of the rest of the budget.

In 2009 the Obama Stimulus package offered state “bonus” Federal funding for Medicaid, provided the state agree to expand the program.  The catch was the Federal funding was only temporary, running out in 2011.

Under the leadership of Republican Governors, even so-called traditionally “blue” states, such as New Jersey, Michigan and Wisconsin, chose to hold the line on Medicaid expansion. Connecting the budgetary dots, this year’s state tax increase was a direct consequence of the state agreeing to ramp up Medicaid spending in 2009 with short-term Federal funding, and then being unwilling to return to old benefit levels after the money ran out.

Congress seems highly unlikely to tax the entire country to pay for programs which fewer than half the states participate in.  So when the “extra” Federal support for Obamacare runs out for Maryland, as it is likely to do, Maryland will be faced again with the choice of having the make up the difference with state tax dollars.

As a result of a key aspect of this past summer’s Supreme Court decision, states have more flexibility in avoiding Obmacare related costs.  State that fail to use this flexibility will take on more spending – and face higher taxes – than states the fail to do so.

Mark Uncapher
Montgomery County Republican Chairman



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