Federalizing Medicaid funding

And another story from Oklahoma:

Facing a $1.3 billion budget hole, the Oklahoma House has passed legislation that would cut 111,000 Oklahomans from Medicaid.

House members on Wednesday passed the bill 65-34 mostly along partisan lines and sent it to the state Senate for action.

The measure would instruct the Oklahoma Health Care Authority to seek a federal waiver allowing the state to exclude from Medicaid all able-bodied adults under 65 with dependents.

That bill failed in the Oklahoma Senate.

Oklahoma is heavily dependent on oil revenue to make their budget work. Oil prices have cratered so state revenues have crashed. At the same time as oil prices have collapsed, economic activity in the state is decreasing which means more people don’t have jobs, more people don’t have employer sponsored insurance, and more people have become Medicaid eligible. The Medicaid eligible pool is counter-cyclical. As the economy does well, the eligible pool shrinks, and as the economy does poorly, the pool grows. So the number of people who are eligible for Legacy Medicaid grows just as the state revenue needed to pay for Medicaid services drops.  This is a problem.

Legacy Medicaid is financed by the state and the Feds splitting the bill.  Oklahoma pays 41% of the cost of the medical services component of the program.  The Feds pick up 59% of the medical side and a bit more on the administrative side.  Oklahoma has a balanced budget constraint.  the Federal government does not.  That means the Feds are willing and able to spend money to meet increased Legacy Medicaid demand in a downturn but the state can not.  Instead, the state needs to cut expenses to meet its balanced budget constraint and Medicaid is a very large line item in every state budget, so that means Medicaid is often one of the major areas of cut-backs in either eligibility, services allowed or provider payments.

So what is the solution?

The long term solution is that the Federal government should take on more and more of the cost of Legacy Medicaid.  The Feds can spend in a downturn when the states have to be 50 mini-Hoovers who have to cut during a recession.  This does three things.  The first it makes sure that people can get the medical care that they need and that the continuity of care is maintained.  Continuous care is usually better and cheaper  than people getting dropped and then added back to insurance months or years later.  Secondly, it transforms Medicaid financing from a pro-cyclical activity into a counter-cyclical macro-economic stability policy.  One of the major components of the stimulus in 2009 was a Federal Match rate bump.  This moved $87 billion in Medicaid expenses from the states’ books to the Federal books.

The Stimulus bump was a short term solution that required massive supermajorities from a party that believes that the federal government faces a different budget constraint than a typical household.  The long term solution is to have the Feds continually increase their share of the costs until Legacy Medicaid is funded on the same bases as Medicaid Expansion. The Feds pick up 90% of the tab and the states pay 10%.  This will still allow for state control  which allows Massachusetts to cover different services than Mississippi but it allows for a much stronger counter-cyclical automatic stabilizer to be in place.

The attraction this should have to a significant number of Republican state level elites is that by taking Medicaid off of their books, it frees up a lot of money for easy to justify tax cuts.


21 replies
  1. 1
    Baud says:

    So what is the solution?

    Blame Obama. Expand majority.

  2. 2
    Patricia Kayden says:

    “The measure would instruct the Oklahoma Health Care Authority to seek a federal waiver allowing the state to exclude from Medicaid all able-bodied adults under 65 with dependents.”

    Cold blooded. It didn’t pass this time around. But who knows?

    So when will the good people of OK figure things out and stop voting for Republicans? It is clear that the Republican legislature is trying to fund the state by stepping on the backs of the poor. How much can they squeeze the poor to keep the state running?

  3. 3
    BBA says:

    I’m surprised we haven’t had a state just shut Medicaid down. It’d be cutting off their head to spite their face, but yknow, we don’t get free stuff from the gummint, why should those people?

  4. 4
    Face says:

    Sounds like a problem easily fixed with aggressive tax cuts and the elimination of the public school system.

  5. 5
    Marc says:

    Before they cut business taxes to balance the budget on the backs of these people, they need to get the ‘job creators’ to actually have living wage jobs lined up for those folks who are going to be kicked off Medicaid. We’ve seen the ‘job creators’ and their tax cuts in action – we need to have them actually accountable for those jobs they’re supposed to be creating before they get their handout. But of course, the politicians are looking for sound bites, campaign contributions, and another chance to kick people who can’t fight back (money is speech, and if you don’t have money…)

  6. 6
    Dennis says:

    Former OK governor David Walters wrote an article showing that it isn’t just the oil bust that is exploding OK’s deficit, insane tax policy has helped:


  7. 7
    satby says:

    Only one quibble from me Richard, and that is we should do nothing that encourages Republicans to think they can cut taxes. Any time the Feds take a financial burden off a state, it should be in exchange for something like the state putting the funds into education spending increases or infrastructure spending.

  8. 8
    RaflW says:

    So, if OK was on ACA Medicaid, wouldn’t the feds pick up 90%? Asking for a friend.

  9. 9

    @RaflW: Different populations — but ACA Expansion medicaid would be 100% Fed match this year, declining to 90% match in 2020 (IIRC) and then going forward.

  10. 10
    Matt says:

    The attraction this should have to a significant number of Republican state level elites is that by taking Medicaid off of their books, it frees up a lot of money for easy to justify tax cuts.

    Key word there being “should”. Unfortunately most of the GOP is in the “the tax cuts are nice, but fucking over the poors is the goal” camp.

  11. 11
    benw says:

    But the OK Republicans are finally living the dream! They screwed revenues up so badly and intentionally backed themselves into a corner with the ‘balanced budget’ BS that they have to start (continue?) gutting the safety net. Close the schools! Everyone off Medicaid! Privatized infrastructure!

    And you think the Feds should just step in and PAY for stuff!? What a downer, Richard.

  12. 12
    rikyrah says:

    Interesting about the bill, Mayhew. The stereotype of those on Medicaid is Rosalita with her 3 anchor babies, or a Tenisha with her 4 children by 4 different Baby Daddies. The TRUTH about where the highest % of Medicaid $$$$$ go to should be a poster of an Elderly White person. It’s those in Nursing homes/”Long-term Care” facilities that gobble up the highest % of Medicaid $$$$, and I assure you that the % going to Administration /overhead is far higher than the $$$$ spent Rosalia/Tenisha and their kids.

  13. 13
    kindness says:

    If the Federal Government did agree to pick up more of the costs of the Medicaid program, wouldn’t that be an incentive for (not only red) states to gut their Medicaid budgets so the Fed picks it up? I do understand having the Feds pick it up would be the quickest way to address the issue but not the long term best way.

    States that vote Republican crazies into office are going to have to live with them. I don’t want to cover those crazies asses. It’s a paradox issue. I want to help the poor but if I’m bolstering the TeaHaddists in doing so I’m shooting myself in the foot.

    What Oklahoma (and several other red states) needs to do is to raise taxes.

  14. 14
    jonas says:

    Since it’s Oklahoma, I’m sure the legislators figure folks can rely on their church prayer chain or something rather than a tyrannical government program that allows them to see a “doctor.”

  15. 15
    Goblue72 says:

    If only there were a candidate declaring we needed the end this charade and just push for Medicare for All.

    Oh well – since we don’t have that candidate, let’s support the one with the entirety non-specific plan to “improve” the ACA at the edges.

  16. 16
    Mnemosyne says:


    I honestly don’t understand why you think expanding Medicare will fix everything but expanding Medicaid is a horrible idea. Please explain.

  17. 17

    @Goblue72: Get to 218-60-5 please and also do the prep and homework needed to assess the trade-offs for Medicare for All (specifically Medicaid and CHIP both offer actuarial value of 97%, current Medicare offers roughly 82% AV, how will that be reconciled. Sander’s plan is to offer everyone 100% AV insurance with magical unicorn financing)

    Here are some Medicare for all questions that need to be worked through:


    Why Medicare-E when there are numerous other examples of universal or near universal coverage that are provided by non-single payer systems (Netherlands, Germany, Switzerland as relevant examples)?
    We are currently closer to the Swiss model of managed competition than single payer. How do we managed the transition?
    If Medicare-E was an easy sell, we should have seen Vermont go forward with a single payer plan. Please explain why Vermont decided that it would not apply for a Section 1332 Waiver to transition the PPACA programs into single payer?
    How should we treat people whose current insurance has an actuarial value (AV) in the high 80s or better (Medicaid, CHIP, Cost sharing Silver 1st and 2nd Tier, Platinum, good union deals etc)? Do we transition everyone to Medicare’s 81/82% acturial value and tell people with good, high AV insurance to suck it? Do we keep high AV plans? If we keep high AV plans, how do we prevent massive cost dumping of sick people from private pools into public pools.
    How do we treat Medicare Supplemental policies to increase AV?
    As we’ve talked about in the rest of the series, Medicare is a good insurance program but it is not a perfect insurance program. The biggest problem with Medicare from a beneficiary point of view is that it does not limit maximum annual exposure to costs nor does it do well with extreme outliers of care. As we’ve seen, Medicare Part B has a 20% co-insurance rate with no out of limit cap. Medicare Part D has a 5% co-insurance rate with no annual cap. Medicare Part A limits annual and lifetime hospital days covered. An individual with Hep-C and cancer is far better off on a PPACA compliant Bronze exchange policy than they would be in Medicare.
    What benefits are covered (most private insurance will cover elective abortions, Medicare via Hyde is prevented from doing that)
    Is private pay for services allowed or is private pay outlawed?
    What do we do with Medicare Part C?Do we place limits on lifetime and annual individual exposure? If so, how do we pay for the increased AV?
    How much do individuals pay?
    Does everyone pay the same amount, or are individual contributions keyed to income/assets? If they are keyed, how?
    Does everyone pay the same deductible or does that vary based on ability to pay? (Same deductible for Bill Gates and the 31 year old with 3 kids working at an $11.00/hour job? Or do they face different cost sharing?)
    Do we use a single national risk pool and contracting model, or regional models (the New York versus North Dakota problem)
    What do we pay providers?
    Is Medicare-E allowed to negoatiate for drugs?
    HOW DO WE GET 218-51-1-5?

  18. 18
    Kylroy says:

    @Goblue72: And if that candidate were capable of crafting a proposal that didn’t rely on economic fairy dust (Sustained economic growth at twice what it’s ever been in the past ten years? Greater savings on drugs than the *total amount* we currently spend on drugs?), I might have some faith in him. Fact have a well-known counterrevolutionary bias.

  19. 19
    Villago Delenda Est says:

    You know, we could just go where the money is and tax the living shit out of the parasite overclass.

    Oh, wait. That’s crazy talk. Never mind.

  20. 20
    Villago Delenda Est says:

    @Richard Mayhew: Hey! Magical unicorn financing seemed to work really well to cover the Defense build up in the 80’s and the deserting coward’s optional illegal war of aggression in the 00’s!

  21. 21
    Kylroy says:

    @Villago Delenda Est: As we’re finding out now, not so much.

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