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Fiscal risks of not expanding Medicaid

May 14, 2013
Robert Robb

Opponents of Gov. Jan Brewer’s Medicaid expansion proposal are recklessly minimizing the risk to the state’s fisc of not participating.

Arizona is in an unusual position regarding this issue. Most states offer very little Medicaid coverage to childless adults. So, for them, expanding coverage to 133 percent of the federal poverty level is a very big step. And even the 10 percent of that expansion they will end up having to pay under Obamacare is a big bill.

In Arizona, voters mandated coverage of childless adults up to 100 percent of the poverty level in 2000, with Proposition 204. Supporters said that it wouldn’t cost state taxpayers a dime, that tobacco settlement money and federal funds would cover the tab. That turned out to be wrong by hundreds of millions of dollars.

Prop. 204 did say that funding for the expanded population was to be “supplemented, as necessary, by any other available sources including legislative appropriations.” The Legislature dutifully appropriated the necessary supplemental funding until the bottom fell out of state revenues. Then, at Brewer’s urging, it enacted a freeze on new enrollments, which expires at the end of this year.

So, in Arizona, the discussion of Medicaid begins with the question of what to do regarding the state law mandate to cover all childless adults up to 100 percent of the poverty level. Opponents to Brewer’s proposal don’t have a clear-cut or fiscally responsible answer to that question.

Some say the mandate can just be ignored due to a state Court of Appeals decision upholding the freeze. That’s a very high-risk assumption. The Court of Appeals decision, written by Judge Patricia Norris, frankly makes no sense.

The legal question involves the interplay between Prop. 204 and a previous initiative, the Voter Protection Act, which largely forbids the Legislature from amending something the voters have passed.

The Superior Court judge in the case, Mark Brain, upheld the freeze with reasoning that holds together. As a statutory initiative, Prop. 204 couldn’t supersede the constitutional vesting of the appropriations power in the Legislature. And the Voter Protection Act prohibits the Legislature from doing stuff. It can’t be read to compel the Legislature to do something, such as make an appropriation.

The Court of Appeals rejected Brain’s reasoning but still upheld the freeze. According to its decision, the Legislature was obligated to do what Prop. 204 mandates. But whether it had done so was for the Legislature, not the courts, to decide.

That’s an illogical, shaky, rationale. Deciding whether the Legislature has complied with Prop. 204’s mandate doesn’t necessarily require judges to substitute their judgments for those of legislators. There’s an objective test: either everyone in the state under the poverty level can enroll or they can’t.

Interestingly, and perhaps significantly, the state Supreme Court didn’t accept an appeal of the decision. So, it stands, but the Supreme Court has left itself the ability to come to a different conclusion in different fiscal circumstances without reversing itself.

If the state isn’t going to ignore the Prop. 204 mandate, there are no options that are better than Brewer’s proposal. The Obama administration has said that it is unlikely to approve a continuation of the freeze past the expiration date. Whether the administration would provide existing federal funding for a Prop. 204 restoration is unclear. Any federal funding may depend on a full expansion to 133 percent of the poverty level, as Brewer has proposed, and the substantially higher federal reimbursement levels under Obamacare clearly do.

Even if the federal government were willing to continue current funding for the frozen population or a Prop. 204 restoration, it would cost the state more than Brewer’s proposal and cover fewer people. What’s the sense in that?

And if the state ends up having to comply with the Prop. 204 mandate without federal funds, the cost would be $1.4 billion a year.  That’s a much bigger risk than the risk of being left holding the bag if the federal government reneges on Obamacare’s Medicaid funding commitments.

Legislative opponents of Brewer’s proposal should provide a clear-cut answer as to what they propose to do regarding the Prop. 204 mandate. If they can’t come up with an answer, or can’t get the votes to enact the answer, they should at least allow Brewer’s proposal to go to a vote of the people.

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