Via Charles Gaba’s exceptional write-up of the Biden healthcare plan, there is one segment that has me scratching my head:
Governors and state legislatures in 14 states have refused to take up the Affordable Care Act’s expansion of Medicaid eligibility, denying access to Medicaid for an estimated 4.9 million adults. Biden’s plan will ensure these individuals get covered by offering premium-free access to the public option for those 4.9 million individuals who would be eligible for Medicaid but for their state’s inaction, and making sure their public option covers the full scope of Medicaid benefits. States that have already expanded Medicaid will have the choice of moving the expansion population to the premium-free public option as long as the states continue to pay their current share of the cost of covering those individuals. [my emphasis]
Why is there a maintenance of effort (MOE) requirement? It effectively rewards laggard states. It buys a slightly better Congressional Budget Office (CBO) score on federal spending. It is bad macro-economic policy.
And far more importantly, we’re in the second negative interest rate recession in the past thirteen years. States have balanced budget requirements. The federal government does not. State funded programs are fundamentally pro-cyclical. We, as a society, should want to have strong counter-cyclical programs that leverages the single society wide entity with almost unlimited risk eating capacity, cheapest access to almost infinite credit and a multi-generational shadow of the future to spend money in big recessions. From a stabilization point of view with any understanding of the incentive structure of the American political system, we also should want those stabilizers to be automatic with minimal need for Congress to haggle over a deal on an FMAP bump.
In December 2018, I did not get the reasoning for including a maintenance of effort requirement in Medicare Extra put out by the Center for American Progress:
And I mean that from a policy angle and a political angle. Why does CAP want to charge states for a portion of low income health care expenses? From a policy angle, I am scarred by the 2008-2010 Great Recession. I want as many automatic stabilizers that are not tied to balance budget requirements as possible. One of the big chunks of the stimulus bill was an enhanced federal Medicaid payment rate which allowed states to not cut budgets as deeply as they normally would have. We don’t want 50 Mini-Hoovers squeezing out Medicaid.
Secondly, and this is a political angle, state level buy-in to a proposal like this is probably likely to be a whole lot higher when the Feds could tell a state “You know, don’t worry about low income health care programs, we’ll take care of it and you can use that $3 billion a year on schools, roads, tax cuts or hookers and blow; your choice”
We should leverage the federal government’s ability to absorb massive credit and shock risk by not requiring states to engage in counter-cyclical spending cuts at the time when more people need public services.