States’ Budget Crisis Could Topple Obamacare

States’ Budget Crisis Could Topple Obamacare

At a recent meeting of supporters in New York, newly elected Representative Nan Hayworth, R-N.Y., heralded changes she and other rookies envision for the basic operation of Congress. Among them is a proposal to alter the calendar for representatives, allowing them to spend every third week in their home district – to put House members “closer to the people,” as Dr. Hayworth put it. Another ambition of the 87 new Republican caucus members is to produce “cleaner bills” focused on single issues.

These two proposals have this in common: They are a response to continued outrage on the right over President Obama’s gigantic health care bill – legislation that, according to Republicans, would never have passed if lawmakers had heeded their constituents, or if they had actually read the gargantuan document. They have a point. Despite a solid year of nonstop campaigning for the bill by a popular president, Americans remain unconvinced. A recent Washington Post-ABC News poll suggests that a majority of the country still opposes the bill.

The recent decision from U.S. District Judge Henry E. Hudson in Virginia gives opponents a solid footing in their quest to overturn the bill. Judge Hudson ruled that the government had overstepped its bounds by requiring Americans to buy health insurance. This mandate provoked libertarians from the start. Why stop at health insurance, they asked? Why not demand that our plumpest citizens join a health club or buy only diet soda? That would be in the national interest. How about legislating that the wealthy must buy government savings bonds to keep our debt at home? Or forcing people to trade in their gas guzzlers for Chevy Volts, to bolster our homegrown manufacturers? Where do you stop?

On health care, according to Judge Hudson’s ruling, we stop right here. Though the judge failed to halt implementation of the law, and addressed only a fairly narrow aspect of the legislation, his words will resonate. He said that forcing Americans to buy medical insurance “would invite unbridled exercise of federal police powers … At its core, this dispute is … about an individual’s right to choose to participate.”

Judge Hudson’s decision is only the latest in a string of setbacks for the legislation. The initial roll-out has shown costs to be higher and coverage narrower than supporters had envisioned. The ink was barely dry when the Congressional Budget Office raised the projected cost of the bill by $115 billion over 10 years. A separate report shows that the 11 million seniors enrolled in Medicare Advantage will pay hundreds more to cover their medical costs starting next year. 

Among the earliest near-casualties were plans carried by workers in a large number of companies deemed not in compliance with the standards of the new law. Because of a requirement that a certain percentage of revenues must be allocated to insurance payouts, many so-called “mini-med” plans, designed to provide minimal coverage to low-wage workers, were suddenly invalid.

Some of the largest employers in the country, like McDonald’s, threatened to cancel their plans altogether. Since a total of some 1.4 million workers are covered by such plans, the White House was forced to allow waivers to more than 200 companies. The administration promised that the bending of the rules was only temporary, and full coverage would be required by 2014. This capitulation angered those on the left, who want companies to provide heftier coverage immediately. Their outrage was muted, however, when it came to light that one of the biggest beneficiaries was the United Federation of Teachers Welfare Fund, which provides coverage for New York City teachers.

Another unexpected outcome of the bill was that numerous insurance companies, including Aetna, Anthem Blue Cross, Cigna and Humana stopped writing child-only policies to counter the requirement that they accept children who have pre-existing conditions. Parents with children who are ill can, according to the new law, wait until disaster strikes to buy insurance for the child, making these policies sure losers for insurers.

Unintended consequences abound. Colleges have had to petition to continue offering the types of insurance they offer students; insurance rates have been rising at an accelerated pace and the requirement that every business transaction exceeding $600 must be recorded with the IRS via a 1099 filing is only one of many absurdities discovered too late in the 2,000-page bill.

However, these issues will most likely not kill Obamacare. Instead, the biggest threat to President Obama’s signature legislation is that so many states are already facing crippling budget deficits and will not be able to afford the increased Medicaid burdens imposed by the health bill. According to the Heritage Foundation, the mandated expansion of Medicaid rolls in states like Nevada, Oregon and Texas will be as much as 50 percent from current levels. Though the federal government will pick up the first three years’ increase in coverage expenses, the cost of administering the enlarged program will fall on the states.

Administrative charges alone are expected to total nearly $12 billion by 2020. “Texas recently concluded that the Medicaid expansion may add more than 2 million people to the program and cost the state up to $27 billion in a single decade,” the report from the Heritage Foundation said. “The Florida Agency for Health Care Administration estimated in April that Obamacare’s Medicaid expansion would require an additional $5.2 billion in spending between 2013 and 2019 and more than $1 billion a year beginning in 2017.” The report concludes, “Obamacare’s unfunded mandates are a fiscal time bomb set to explode state balance sheets across the country starting in 2014.”

With 46 states facing budget shortfalls in fiscal year 2011, after recording a record deficit of $174 billion in FY2010, our states are in trouble. In the past year, 29 states raised taxes by a record $24 billion. It is unlikely, given that the $100 billion in state aid contained in the Recovery Act will be slowing to a trickle, that the states’ budget outlook will brighten anytime soon. In short, it is almost certain that states will not be able to pay for the increased Medicaid coverage required under Obamacare.

All politics, they say, is local. As taxpayers around the country watch their property and local income taxes soar, they will revolt. This could intensify the drive to repeal Obamacare, already a rallying cry for the 2012 campaign.