Avik Roy: Why States Have a Huge Fiscal Incentive to Opt Out of Obamacare’s Medicaid

Eight state governors have stated that they will take advantage of the recent Supreme Court ruling, allowing them to opt out of Obamacare’s dramatic expansion of Medicaid. Their actions have been dismissed by liberal columnists as mere partisan posturing. After all, argue the liberals, the federal government is picking up most of the tab, so what’s the problem? Don’t governors have every incentive to fleece the taxpayers of other states? It turns out, however, that this logic is flawed, and that the Medicaid expansion will cause state budgets to explode. Here’s why.

Prior to Obamcare, the Medicaid program was somewhat limited. All states who have signed up for the program (which, today, is all of them) are required to cover pregnant women and children younger than 6 with family income under 133 percent of the federal poverty level, and children aged 6-18 with family income under 100 percent of FPL. There are other eligible populations, such as people with disabilities, certain low-income parents, and low-income Medicare beneficiaries.

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