ACA: self imposed redistribution from poor to rich states

At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare, and 21 have rejected expansion, while 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones).

According to an analysis I have done using Kaiser Family Foundation data–in 2016 alone–the 24 expanding states will receive $30.3 Billion additional federal dollars, while those not expanding will forego an additional $35.0 Billion they could have had (the fence sitters have an aggregate $15.2 Billion at stake in 2016). This represents a huge redistribution of federal money from non-expanding to expanding states. The table below highlights the biggest self imposed losers, and winners, again for 2016 alone (there are predictable impacts on state uninsured rates).

ScreenHunter_04 Oct. 25 14.45

Note: total is for all states in foregoing & gaining group.

Most states will also have increased spending if they expand Medicaid; for North Carolina, in 2016 Kaiser estimates that the state will have to spend $390 Million to leverage around $4 Billion in extra federal money, and reduce the ranks of the uninsured by around 375,000 persons (about 475,000 more would be covered by Medicaid). To put the foregone $4 Billion in context, North Carolina’s total Medicaid budget in fiscal year 2014 is around $14 Billion, and there is certainly no alternative proposal as impactful on the uninsured in my state at any cost.

States that are not expanding Medicaid have historically received more in federal spending per dollar of federal taxes paid by the state ($2.18) as compared to States that are expanding ($1.85) and those that are considering expansion ($1.53), all in 2009, a year with a very large federal deficit. In year 2000, the last year of a federal surplus, those states rejecting expansion received $1.36 in federal spending per tax dollar paid as compared to $1.10 for those undertaking expansion (the fence sitters were net donor states, $0.87). Similar patterns held in both 1994 and 2004 (other years shown in this table I put together using IRS & Kaiser sources Tax Flows Table.10.25.13_blog).

While the Medicaid program is not the only means through which richer states have cross subsidized poorer ones, it has been a large and consistent source of such flows. By choosing not to expand Medicaid, the poorer, mostly politically “red” states are redistributing money toward the richer, mostly politically “blue” ones (there are exceptions; red Kentucky is both expanding Medicaid and has one of the best functioning State exchanges). Further, those States that are expanding Medicaid have also tended to set up state-based insurance exchanges, which are currently operating much better than the federal one, meaning that income based subsidies associated with the purchase of private health insurance may flow less freely to poorer states, at least in the short term. And there is a court case that could stop the flow of such subsidies to states not operating their own exchange all together. I have not tried to estimate the magnitude of these sources of redistribution from poor to rich states under different scenarios because things are so fluid, but the Medicaid numbers outlined are potentially just the start.

The bottom line is that if the current State Medicaid expansion decisions persist, the unintended story of the ACA will turn out to be the redistribution of money from poorer States, to richer ones, an outcome imposed by the poorer states, upon themselves. I will write more about what I think this means for the future of health reform over the next few days.


Note: I was assisted by excellent research assistance from Callie Gable, a Duke Undergrad. Any errors are my responsibility, however.

The cost of States not expanding Medicaid. Kaiser Family Foundation, July 2013.

Internal Revenue Service (IRS) report Internal Revenue Gross Collections, by Type of Tax and State, for Fiscal Year 2009

Internal Revenue Service (IRS) Federal Funds – Summary Distribution, by State and Island Areas : 2009

cross posted at freeforall

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

35 thoughts on “ACA: self imposed redistribution from poor to rich states”

  1. Perhaps the high covariance of “Red State” and “Making a bad economic decision” is in fact the correlation of both those two variables to a third one, the states’ average DQ (Dumbness Quotient).

    ::Snark off::

    Seriously, has there been any study by economists of the tendency of certain groups in the population to (a) not recognize self-interest and/or (b) act deliberately in conflict with self-interest? This behavior seems to contradict one of the fundamental assumptions of many economists that man (individually and collectively) makes choices based on self-interest. Without that assumption, we have to recognize that a lot of economic models are smoke and mirrors. (Which isn’t necessarily a bad thing.)

    1. It’s not irrational if you are white and view economics as purely a competition between white Americans and black, since clearly balck people will be hurt more (proportionally) by this. Of course, that particular view of economics is irrational (no to mention evil), so there you are.

    2. It’s not that they’re voting against self-interest, they just place different values on their interests than economists would.

        1. I would add that most of the voters supporting this are people who frankly don’t know the difference between Rush and Reality.

  2. The GOP in Red states are sitting ducks for this idiocy in 2014. I suggest photomontages of governors shovelling mounds of dollar bills into a bonfire. $1 million in $100 bills weighs 10kg (22 lb) with a closely packed volume of 12.8 litres, so a billion is 10 tonnes and 12.8 cubic metres. Rick Scott’s $6.7bn foregone would be 67 tonnes and 85.9 cubic metres, a pile 4.4 metres (14.47 feet) on a side.

  3. The irrationality can be boiled down or put partly to account when recalling the two economic ways of thinking in this country.

    One way is that to prosper, you steal someone’s labor; to prosper more, you steal the labor of more persons. Feudalism –> plantationism –> prison labor & anti-unionism (transitioning over the centuries)

    The other way is that to prosper, you should make your OWN labor worth more thru education or skills, and to prosper even more, you want to work with, live among, trade with, or employ, other skilled and educated people.

    The first way sees wealth as a zero-sum thing. (When a slave runs away, he steals his own self from his master; becomes a Winner, and makes the slave owner a Loser.) When the source of wealth is “units of stolen labor”, not “value added TO units of labor”, there is therefore always a Winner and a Loser. And so the guy in this camp just needs to know that he is not going to cede any ground to undeserving Losers.

    This leads to the notion that any ground gained by a Loser means that the Winners were not successful in stealing all of the Losers’ labor. (See, e.g., remarks about the 47%, tirades against free obama phones, etc.)

    The second way of economic thinking is quite different. It views the source of wealth as the value added by productivity and efficiency gains. It knows that “when we all do better, we all do better”. That guy sees that ground gained by workers, the underprivileged, former slaves, etc. is net gain not only for them but for the entire society that trades with them, catches their colds, goes to the same schools, etc.

    One party is always the Theft of Labor party in our nation, because we have these two ways of economic thinking. The Theft of Labor coalition or party makes some bee-zarre decisions (as with not accepting the Medicaid expansion) due to its odd and irrational theoretical basis for its view of economics.

    Absolutely it is prevalent among the economically powerful in the South.

    (I’ve been reading many slave narratives, so this is why my comment emphasizes slavery examples so much. Anyway, it is amazing how much you can learn about the Tea Party and modern racism and “conservatism” from personal accounts of slave experiences in oh, 1844 or 1851. Also remarkably revealing about modern america is Fanny Trollope’s travelogue from the early 1800s.

    1. Thank-you. I’ve been searching for this puzzle piece for a long time. It fits well with different regional understandings of freedom laid out by David Hackett in Albion’s Seed. Among Virginia planters, freedom was the freedom of a white man of property to rule over his family, property and employees. We still see this in some businesses, mostly based in the south, which think that it is a violation of their freedom if they can’t dictate what heathcare their employees have access to.

      1. Also, the bare bones, zero-sum/winner take all existence of the Appalachian backcountry peoples (that Hackett traces from the blood soaked English/Scot borderlands) I think figures in here.

        1. Him. Interesting stuff. Try too, Jane Jacobs’ “systems of survival” if you like albions seed.

      2. Yeah. And it also means that if you work for an honest living, you’re in a class with slaves, and dishonored. Moreover there is little concept of adding value; rather, more massive exploitation is the way to prosper (for the Winner, of course).

        Paradoxically through this system, accumulating security necessarily also only increases the threats to ones security. If security is obtained through greater wealth and power, and greater wealth and power are obtained through numerically more exploitation of labor, one acquires a seething, restless foundation for one’s pile. Hence the drive towards repression, disenfranchisement,. and brutality; also the need to control the horde by turning segments of the populace against one another.

        Then, on the other hand, you have the Swedes.

    1. Except in the instance of “the foregoing” above, which is derived from another verb correctly spelled “forego”
      But yes. Forgo, forget, forswear, forbid, etc. (like German “ver-“). “Fore” is a different word and part, meaning in front of, ahead, before. “The foregoing,” forehead, forefoot, forelock, … “Fore!”

  4. This trend may be partial, if unintentional redress for the excessive military spending that often benefits Republican-leaning states.

    Lots of complex argument and geo-economics that I won’t bother to parse or agree or disagree with. Just wanted to note that equitable federal support to various states for various reasons has always been politicized.

    Notwithstanding the very real suffering the Republicans want to impose on their own citizens for political purposes, this situation is drizzled in irony, given Robert Reich has reobserved what many on the left have been saying about ACA from the beginning.
    It’s a Republican plan. If they’re going to be unhappy anyway, not matter what Obama gets passed, why not just go with national healthcare? Some of those suffering lack of care in “red states” are probably wondering that themselves.

  5. The author’s analysis is simplistic and fails to acknowledge some basic economic truths. The Kaiser study which he cites is similarly flawed, because, while focusing on the largesse which the federal government will shower on the states in the initial years of the expansion, it fails to address the deleterious economic consequences that will predictably and inevitably ensue after the government’s contribution is reduced to 90% of expansion costs. The author celebrates the short-term “windfall” that the states acceding to the Medicaid expansion will receive, but, pointedly, abstains from any sort of discussion or contemplation of the long-term implications of the Medicaid expansion on the finances of those same states.

    Most of the states are already in hock up to their necks, facing massive debt, substantial (and increasing) debt service costs, underfunded pension liabilities and exploding entitlement costs. With respect to the latter segment, Medicaid is one of the largest drivers of state spending, at roughly 20% and rising. The governors who rejected Obamacare’s Medicaid expansion did so because they wisely saw the conceit for what it was — a fiscally ill-advised bait-and-switch scheme, a budget-busting Trojan horse that should be apparent to anyone with a modicum of objective fiscal perspective and basic analytical skills. Sure, the federal government has generously agreed to pay 100 percent of the costs of the expansion from 2014 to 2016. So, essentially, the states will get a fleeting, three-year free ride (though, not federal taxpayers). The federal government then reduces its contribution gradually until such contribution bottoms out at 90 percent, from 2020 onward.

    Let’s put aside the quaint notion that the federal government — facing a national debt of $17.1 trillion, plus upwards of $60 trillion in unfunded entitlement liabilities — is hardly in a position to fund a massive expansion of a costly entitlement. We know that the federal funding for the Medicaid expansion merely comes from more Treasury debt issuance. Are the author and like-minded liberals so naive as to believe that having certain states pay 10% of the costs of adding millions of new Medicaid beneficiaries to the benefit rolls is a burden so trifling, so insignificant, so easily borne, as to have no impact whatsoever on already strained state finances and empty or near-empty coffers? The abject fiscal illiteracy and absurdity revealed by the opinions on display here beggar belief. But, who ever contended that liberal apparatchiks and kulaks allow reality and facts to intrude on the blissful ignorance of their centralized planning fantasies and “benevolent” welfare conceits?

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