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Stethoscope on money
It is time to revisit why Wisconsin continues to turn down Federal Medicaid expansion funds authorized under the Affordable Care Act. To date, Wisconsin has refused a total of $2.1 billion. This is particularly maddening since these are Wisconsin federal taxpayer dollars that could be returned to the state. Instead, this federal money paid by Wisconsin taxpayers will go to other states! No wonder Governor Evers would like to reverse this irrational policy initiated by Governor Walker, and maintained by the gerrymandered, non-representative state legislature.
Spurning this money exhibits two types of economic confusion. The first is that Federal Medicaid payments are an economic risk to the state because someday these payments may be significantly reduced or cut off altogether. The second is the false Republican notion that the Affordable Care Act, including Medicaid expansion, can and should be "repealed and replaced" by an unregulated "free" market to fulfill the goal of universal health insurance coverage.
Prior to the passage of the Affordable Care Act, Medicaid provided federally-financed but state-administered health insurance for poor people with income below the federal poverty line. The 2014 ACA offered states the opportunity to expand Medicaid to people whose income was below 138% of the federal poverty line ($41,400 for a family of four). For the first six years after passage, the federal government paid states 100% of the costs of Medicaid expansion; after 2020, that payment rate dropped to 90% with no further scheduled reductions. States were not obligated to accept that opportunity to expand Medicaid; Wisconsin was one of the states that declined.
Spurned Savings
The Federal Medicaid expansion money offers the state not one but two types of savings. First would be the savings from using the federal money instead of state money to pay for medical care for low-income people.
Second, that federal money from outside the state would also create a “multiplier effect,” i.e., after the federal money is spent on medical care, it would be re-spent within the state. As the money is spent initially on medical care, it becomes income for doctors, nurses, administrators and all those who are part of providing care for patients under the expanded Medicaid plan. Then those people spend that incremental income according to their preferences on food, clothing, housing, transportation, etc., thereby, supporting the local economy. So, by rejecting Medicaid expansion funds, the state is denied the benefit of that monetary “multiplier,” as well as the state tax revenues generated by that spending. That extra tax revenue becomes available for investment in public sector assets, e.g., streets, roads, sewer and water systems, and, of course, potholes! Most of these assets raise productivity and attract private sector investment for further economic development.
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Why Turn Down this Outside Money?
But Governor Walker turned down the money. The underlying reason is not hard to discern: Walker had presidential ambitions. He wanted to support the Republican Party position of repealing the Affordable Care Act and replacing it with “free market solutions.” In order to show his “conservative” bona fides, Walker wanted to contribute to the failure of the Affordable Care Act and then declare that it doesn't work.
Because of the way insurance markets organize incentives, they cannot provide universal healthcare coverage without the kind of stringent regulations built-in to the ACA. Here’s why. Insurance companies have an incentive to assemble—or “pool”—policyholders into separate groups according to their expected cost. Competition among insurance firms compels them to charge premiums that will recover the costs within each pool, plus at least a fair rate of return to investors. Because they are expected to cost more, people in higher-risk pools are charged higher premiums than those in lower-risk pools. The most familiar example is the more accident-prone drivers paying higher car insurance premiums. Similarly, sick and older people will pay higher health insurance premiums, and in some cases be denied coverage or be charged such high premiums that they drop out of the market altogether. The Affordable Care Act regulates private companies to avoid the perversity of pricing sick people out of the market.
Transitory versus Permanent Income
Walker’s personal ambition was hardly a good public reason to turn down federal money, so Walker offered a different excuse: If Wisconsin were to become reliant on periodic payments of federal money, then if the payments were to stop at some unknowable point in the future, the adjustment would be burdensome. One way to avoid the painful adjustment is not to accept the Federal money in the first place. (The same odd logic would apply to federal money earmarked for any purpose, such as highway funding, scientific research, or government contracts with private firms.)
Core economics offers a better way. Rather than reject the federal payments regarded as transitory, invest the state savings and growth-enhancing multipliers into something more permanent: productive public sector assets. There are numerous public sector asset investment opportunities available in Wisconsin—streets, roads, school buildings, sewer/water systems, broadband, and that engineering school building at UW Madison!—the list is long. If the federal payments are eventually terminated, the state would still have the public assets and the productivity boost that they provide. If the federal payments are never terminated, then the state would have both those payments, expanded Medicaid, and the productive assets.
