The new tug of war over Medicaid

My New York Times column is here, it has two parts, a prediction and a proposal.  The prediction:

Medicaid has never been especially popular, and when its expanded role becomes more widely understood, it is likely to become less popular still.

I am not expecting that governors will turn away nearly-free federal dollars outright.  (Though probably some will, here is an update on how the governors are reacting, which as I see it involves lots of bargaining.)  I am predicting that the extreme subsidies for states to hop on to the expansion will at some point weaken or go away.

Change might come soon. If Mitt Romney wins the presidential election, and if Republicans control both houses of Congress, they could turn Medicaid into a block grant program, where states can spend the money as they wish.

Even if President Obama is re-elected, some state governments will work hard to reduce the number of people covered by Medicaid. State officials know that limiting Medicaid will place more individuals in the new, subsidized health care exchanges, and that those bills will be paid by the federal government. The basic dynamic is that state and federal governments have opposite incentives as to how many people should be kept in Medicaid.

The proposal?  Here is my best take on how Obamacare might evolve into something more practical:

1. Many of the states slip out of expanded Medicaid obligations and many employers slip out of expanded mandate obligations to cover their employees (waivers, willingness to pay fines, lobby to have the law altered).  The system evolves toward a form of means-tested vouchers, sold on the exchanges.

2. The subsidies for the private exchanges become so expensive that the individual mandate is limited in scope.  Eventually the mandate applies to catastrophic coverage only.

3. For catastrophic coverage, we move toward a mandate and subsidized exchanges, and for non-catastrophic coverage there is no mandate and health savings accounts, the latter supplemented by public contributions if needed or if you wish.

I am not predicting that, nor is it my first or even preferred second-best solution.  It is however the best solution I can see evolving out of ACA in its current form.


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