Some State Officials Wonder Out Loud about Pulling Out of Medicaid

The Texas Tribune and the NY Times have reported that Representative Warren Chisum, a candidate for Texas House Speaker, said of Medicaid this week, “This system is bankrupting our state. We need to get out of it. And with the budget shortfall we’re anticipating, we may have to act this year.” In response, State Senator Jane Nelson, who chairs the Public Health Committee, said dropping out of Medicaid is worth considering, but only if it made fiscal sense without jeopardizing care.

And in Arizona, the newly elected president of the state senate, Russell Pearce, is pushing to reject federal funding for that state’s Medicaid program.He has suggested that the state turn down $7 billion in federal money designed to help keep the Arizona Medicaid program solvent.  When asked by the  Arizona Daily Star what the more than one million Arizonans who currently rely on the state’s Medicaid program would do if the program was eliminated,  Senator Pearce  replied that “church, community, family's got to provide.” Arizona was the last state to participate in the federal-state Medicaid program in 1982, waiting 17 years from the creation of the program in 1965.

Governor Jan Brewer of Arizona is reported to want to trim Medicaid spending but not in a way that jeopardizes federal funding. Arizona moved to eliminate the CHIP health insurance program for children earlier this year but was told by the federal government they could not do so and maintain their participation in Medicaid. Both the stimulus package and the new federal health law require states to maintain current levels of eligibility.

Those talking about pulling out of Medicaid often cite a Heritage Foundation WebMemo from December 2009 that is titled “Medicaid Meltdown: Dropping Medicaid Could Save States $1 Trillion.” The paper is predicated on the point that Medicaid is voluntary and if states withdraw from Medicaid they could save millions. 

After 2014, individuals formerly eligible for state Medicaid programs would presumably become eligible for premium assistance from the federal government under provisions of the new federal health reform law. But until 2014, it is likely that these individuals would be uninsured. Their health care, like that of other low-income uninsured Americans, would be provided by a combination of community clinics for the uninsured and unreimbursed care in hospital emergency rooms – neither of which are equipped to provide substitute care to those on Medicaid today.

The Heritage Foundation concludes that the savings to states could be huge and elected state officials might even be considered “irresponsible” to pass them up. Yet, Heritage also acknowledges that the federal government would “be left holding a trillion-dollar-plus tab.”

Debates like the ones starting in Arizona and Texas are bound to pop up around the country as state officials once again face huge budget deficits.  The willingness of some state officials to consider breaking out of what some have called the “golden handcuffs” of Medicaid – a matching deal presumed too good for states to refuse – demonstrates that no sacred cows remain in state budgets.