Why Some States Expanded Medicaid While Others Haven’t

Devon Herrick
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Posted: Nov 09, 2015 10:59 AM
Why Some States Expanded Medicaid While Others Haven’t

Why have some states expanded Medicaid while others have not? It is often assumed that states that refuse to expand Medicaid are doing so for purely political reasons. Proponents of Medicaid expansion paint conservatives who oppose expansion as both fiscally foolhardy and heartless. At the same time, expansion advocates are prone to argue for the expansion of Medicaid due to economic reasons. After all, increased federal funds benefits their state residents without an increase in taxes. That sounds like a no-brainer! Yet upon closer inspection, neither of these explanations are accurate. The evidence points to a more fundamental conclusion: expansion states are spendthrifts, eager to spend not only their own residents’ money but money from other states’ taxpayers as well. States that expanded Medicaid tend to have per capita state spending that’s about 17 percent higher than non-expansion states.

Let me explain. In September, the Kaiser Family Foundation released a report comparing Medicaid expansion states with states that chose not to expand Medicaid. The report generated little fanfare among opponents of Medicaid expansion. It should have created a firestorm. The report sheds light on why many states seemingly turned down free federal Medicaid funds, while other states eagerly gorge at the public trough.

For starters, non-expansion states have a higher degree of economic freedom than expansion states. States declining to expand Medicaid tend to be fiscally conservative, with lower state taxes and lower state spending. By contrast, expansion states tax their residents more. In 2004, expansion states had median per capita tax collections (both state and local) of 19 percent more than non-expansion states. By 2012, this gap had widened with expansion states collecting 28 percent more taxes per capita than non-expansion states. Moreover, since 2008 (around the time the recession was in full swing), expansion states have moved to increase taxes, while non-expansion states have reduced taxes slightly.

The Kaiser report also looked at “taxing capacity.” That is a nebulous term, but it basically measures the degree to which states are taxing their citizens as much as possible. It’s a function of both income and tax rates. In 2004 expansion states and non-expansion states were extracting taxes from residents at nearly equal levels when comparing their so-called taxing capacity. By 2012, expansion states boosted collections as a percent of taxing capacity by 17 percent compared to non-expansion states.

States that expanded Medicaid do tend to be slightly richer, on average, than non-expansion states. But the gap is narrowing, possibly due to state fiscal policies that run counter to economic growth. In 2001 expansion states had real median incomes that were nearly 13 percent higher than non-expansion states. By 2013 this gap narrowed to just over 9 percent. Historically, expansion states have had slightly lower poverty rates, but this gap also narrowed to 1 percentage point by 2012 (12.9 percent vs. 13.9 percent).

Non-expansion states, although slightly poorer, have lower unemployment than expansion states (6.7 percent versus 7.2 percent). That may defy conventional wisdom but it should not come as a surprise. It’s the result of greater economic freedom. Expansion states tend to have more workers in the health care sector; about 30 percent more. This was true long before the ACA. The decision to expand Medicaid in some states may have been to prop up their bloated health care sectors. Yet annual health care employment growth in both expansion and non-expansion states was about the same from 2008 to 2013 (1.9 percent). Historically, from 2000 to 2013, health sector employment growth was actually higher in non-expansion states (2.5 percent vs. 2.2 percent).

There you have it. How do states that expanded Medicaid differ from states that have not? Expansion states were historically richer, but that is changing due to their presumed fiscal irresponsibility. They have less economic freedom, tax their residents more and spend more of their taxpayers’ money. Conservatives in states that chose not to expand Medicaid are under intense pressure to drink the Medicaid expansion Kool-Aid. Yet in retrospect, states that expanded Medicaid have followed fiscal policies that are nothing to emulate.