Medicaid Expansion: Who pays?


Hospitals in South Carolina, both individually and under the auspices of the South Carolina Hospital Association, are pushing hard for an expansion of Medicaid eligibility under the Affordable Care Act popularly known as “Obamacare.”

Just how expensive would this expansion be, and who would pay? For the first three years starting in 2014, the federal government will cover 100 percent of the cost for states’ Medicaid expansion, while dwindling down that percentage to 90 percent within the decade, leaving states accountable for 10 percent of the cost. Through 2022, the expansion will increase states’ spending by 2.8 percent compared to what they would be spending without it. The expansion would increase federal Medicaid spending by $931 billion and state Medicaid spending by $73 billion.

A majority in the South Carolina House seem to be opposed to the expansion on the grounds that South Carolina taxpayers simply can’t afford it. But the hospitals stand to profit hugely by an expansion, and their lobbyists are working House members (so we hear from reliable sources) around the clock.

So badly do they want the expansion that they would be willing to pay an increased provider tax on themselves if that would persuade reluctant lawmakers to override a gubernatorial veto of it. If paying an increased provider tax “would, essentially, be the health-care industry taxing itself,” wouldn’t that be reason enough for state lawmakers to go along with the expansion?

If so, their reasoning is shortsighted. The first lesson to remember in economics is that all actors are self-interested. South Carolina hospitals don’t favor a Medicaid expansion out of altruistic motives; they want it because it means more revenue. Hospitals wouldn’t be advocating for this tax if it meant they’d be taking a loss, and they’ll be able to pass some (if not most) of the tax on to patients in any case.

Moreover, it’s doubtful any provider tax increase that could be agreed upon in reality would be large enough to cover the $1.5 billion in increased state spending an expansion would require over the next ten years.  Medicaid expansion may be in the interest of South Carolina hospitals in the short run, but it’s not in the interest of our state in the long run.

And remember: We all pay federal taxes. So ultimately we’re paying for the $931 million in additional federal spending, too.

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