Looking Past the Spin on Medicaid and Exchanges | Eastern North Carolina Now

    Publisher's note: The author of this article is Sean Riley, who is a John Locke Foundation Adjunct Policy Analyst.

    RALEIGH     Gov. Pat McCrory is expected to sign soon legislation that says no to implementing the federal health care law's most costly provisions -- a state-run insurance exchange and Medicaid expansion--and rightly so. From a limited-government standpoint, this posture represents the most prudent option for states committed to thwarting federal encroachment and the blurring of lines between state and federal control.

    The decision comes despite increasing efforts by proponents of the health law to co-opt traditional limited-government and free-market views. On the one hand, proponents have claimed that creating a state health exchange would preserve states' rights; on the other, that Medicaid expansion is a "good deal" with a high return on investment. The governor and state lawmakers were right to reject both sales pitches.

    Turning first to exchanges.

    It might seem odd to the casual observer that liberty-minded think tanks and states across the country oppose state-established exchanges. The key lies in a simple distinction: "state-established" does not mean "state-controlled." Establishing an exchange in no way exempts states from new federal insurance regulations. Any latitude states might acquire in exchange governance is overshadowed when one realizes that exchanges are integral to enforcing the law's individual mandate and distributing over $1 trillion in subsidies.

    While the federal government will establish exchanges in states that don't, that's little reason to be complicit in expanding the law's regulatory burden and cost-shifting. North Carolina is joining the majority of states that have thus far decided against establishing an exchange.

    Turning next to Medicaid expansion.

    States, already saddled with Medicaid expenditures consuming an ever-growing portion of their budgets, are being asked to ignore the lack of flexibility in Medicaid and instead extend the program. To that end, proponents of the law have repeatedly claimed that Medicaid expansion is a good deal for states, characterizing it as stimulus for flagging state economies and strained budgets.

    But if stimulus spending is intended to spark and sustain economic growth, stimulus for entitlements will only spark and sustain reliance on entitlements. Remember, it was less than a year ago that the Supreme Court found states already rely on Medicaid funding -- so much so that the law's attempt to condition existing Medicaid funds on expansion was unconstitutional.

    If expansion is such a good deal, why did the law attempt unconstitutionally to coerce states into accepting it?

    One reason is that the law's 90 percent federal funding match for expansion is a double-edged sword. While initially attractive on the spending side, reducing future spending would become nearly impossible. If future cost increases forced the state to scale back the Medicaid program, North Carolina would need to cut $1 million from its budget for the expanded population to realize just $100,000 in savings.

    Meanwhile, proponents have been telling state policymakers that expansion would actually save money based on various assumptions from the N.C. Institute of Medicine. But while the net cost under NCIOM's assumptions would lead to savings through 2017, by 2020 the state would incur net costs of nearly $100 million, jumping to $119 million just one year later. Curiously, this is when NCIOM's projections stop --one year before Medicaid expansion would become an aggregate net cost to North Carolina.

    Of course, exchanges and expansion don't exist in a vacuum, and must be placed in the broader context of health spending in America. Mandatory federal health spending will more than double by 2023, at which point it will eclipse 50 percent of all mandatory outlays in the federal budget for the first time in history. For comparison, that number stood at just 9 percent when Medicare and Medicaid began. No one will argue that we're on a sustainable path.

    Fortunately, the General Assembly's approval of Senate Bill 4 and Gov. McCrory's announcement that he would support the legislation signals that North Carolina recognizes the direction we're headed and isn't planning to just go along for the ride. While some will inevitably claim that states opposed to exchanges and expansion are uncaring, or acting out of spite, reducing reliance on Washington is the true way for states to preserve the safety net.

    After all, let's take a minute to remember the that it was the federal government, not North Carolina, that threatened existing Medicaid funding just last summer in the Supreme Court.