Two recent articles on California’s fiscal situation illustrate the mixed messages coming from some states, which face rising costs from expanding Medicaid under the Affordable Care Act even as they grapple with a reduced, and frequently fickle, tax base.
On Tuesday, the Los Angeles Times highlighted the growing cost of Medicaid in the Golden State—namely, a $1.2 billion hole in the state’s budget. While California’s Medicaid enrollment exceeded projections by 1.4 million, many of those new enrollees had already been eligible for the program. The federal government provides states a 100% Medicaid match through 2016, but that’s only for those individuals newly eligible under the 2010 health-care law; if individuals who had already been eligible for but not enrolled in Medicaid come out of the woodwork, states will pay a portion of those costs. In 2012, the Department of Health and Human Services estimated that states would pay an average of 43% of those enrollees’ Medicaid costs in this fiscal year.
On Thursday, The Wall Street Journal reported on the “income tax yo-yo” California and many other states are facing. A recent Rockefeller Institute report found that state revenue declined in the first quarter of 2014, and many states are reporting shrinking surpluses or projected deficits. Meanwhile, economists at the Federal Reserve Bank of Chicago have noted the increasingly uncertain nature of state tax collections.
Some states opted to expand Medicaid under the health-care law, raising costs and budgetary pressures at a time of volatile tax revenue. In some cases, the result has been cognitive dissonance. California Gov. Jerry Brown was quoted in Thursday’s Journal saying: “We can’t spend at the peak of the revenue cycle—we need to save that money, as much of it as we can.” But two days earlier, Mr. Brown had expressed pride in the “huge social commitment” that health-care expansion represented in his state—even as it caused a billion-dollar overspend.
Ultimately, states that expand Medicaid could face pressure to cut other important services, whether health-related or in areas such as corrections or education. Recent trends have moved toward reductions because when an irresistible force such as a shrinking tax base meets an immovable object—the rising costs from expanding Medicaid—something has to give.
This post was originally published at the Wall Street Journal Think Tank blog.