Obama's Patient Protection and Affordable Care Act celebrated its third birthday last weekend. This particular anniversary was a big deal, because it was often unclear whether the law would reach it. In the first place, it was imperiled by the Supreme Court; in the second, by the Republican Party’s promise to kill it if Republicans won the White House in 2012. Over the past year, Obamacare survived both challenges, and next year it will begin its core mission of insuring tens of millions of Americans.
Republicans, however, haven’t quite given up. Their slogan, “repeal and replace,” has given way to “resist and annoy.” Unable to get rid of Obamacare, many have settled on a strategy of making it function as poorly as possible. At the national level, House Republicans have refused to appropriate funds for implementation. At the state level, most Republican governors have refused to set up insurance exchanges, and many have refused to expand Medicaid.
The question, though, is whether governors who purposefully do a very bad job implementing Obamacare will hurt the law, or just themselves and their states. Call it the California v. Texas question.
In 2010, Governor Arnold Schwarzenegger of California signed into law two bills to establish the online insurance marketplace -- "exchanges" -- that are at the center of President Obama's health-care reform. In addition to being the first state to pass legislation implementing Obamacare, California promptly accepted the law’s Medicaid expansion. By this time next year, when the expansion is fully underway, it's possible that the portion of the state's uninsured population will have declined from 20 percent to less than five percent.
In Texas, the situation is just the opposite. The Lone Star State isn't lifting a finger to create an exchange, instead leaving the work to the federal government. Texas is refusing Obamacare's Medicaid expansion, too. “The idea that we would expand and put more money and more people into a broken system is not unlike putting another 1,000 people on the Titanic,” Republican Gov. Rick Perry told Forbes. “You know how this is going to turn out. And it’s going to be a disaster.”
One might observe that the health-care system in Texas, which, has the nation's highest rate of uninsured residents -- 24 percent, or more than six million people -- is already a disaster. But the recalcitrance of Perry and Republican state lawmakers has the potential to make it much worse.
In the case of state exchanges, the federal government can step in to build them, though it will be a heavier lift than the administration ever imagined. “They definitely did not envision this many federally run exchanges,” said Caroline Pearson, vice president at Avalere Health LLC, a health care research company. “It was considered a fallback. The idea was it would be mostly state run and in the event of an anomalous state that didn’t do it, the feds would step in.”
For the feds, there are certain economies of scale in setting up the exchanges. But many of the tasks -- including coaxing state computer systems to talk to one another, establishing call centers, actively managing the insurance options and conducting advertising and outreach so people understand the benefits to which they're entitled -- would be much easier with state cooperation.
Unlike the exchanges, however, there is no fallback if a state refuses to expand Medicaid, which covers the poorest Americans. But that refusal will come at a tremendous cost to the state’s hospitals.
Right now, Texas doesn’t offer Medicaid to poor, childless adults. The state’s incredibly stingy Medicaid program is one reason it has so many uninsured residents. The Affordable Care Act would change all that, using Medicaid to cover all adults up to 133 percent of the federal poverty line – and it would do it on the federal government’s dime. Above 133 percent of poverty – and until 400 percent of poverty – residents would get subsidies to buy private insurance on the exchanges.
Here’s the catch: Although Texas can legally refuse the Medicaid expansion, it can’t opt out of the subsidies provided to encourage participation on the exchanges. So while a Texan making $13,000 might get no help with her health insurance, one making $23,000 might get the whole tab picked up by the feds. The possibilities for confusion -- and, once the situation becomes clear, anger -- are both obvious and immense.
Moreover, because Medicaid's expansion was conceived in part as a new source of revenue for hospitals, Obamacare ratchets back payments -- called "disproportionate share payments," or "DSH payments," in health wonk parlance -- that the federal government currently makes to providers who treat the uninsured. Texas, for instance, received almost $1 billion in DSH payments in 2011. Under Obamacare, they’ll receive far, far less.
This is a big reason why many Republican governors, including Ohio's John Kasich and New Jersey's Chris Christie, surprised national Republicans by taking the Medicaid money. They’re more afraid of seeing their hospitals close than of being criticized for cooperating with Obama. But in states like Texas, hospitals won’t get the new Medicaid money and they won’t get the old DHS payments, which could throw them into crisis. “Safety-net hospitals that get cuts in DSH payments with the same number of uncompensated care patients are in serious financial trouble,” said Pearson. Privately, many health-care experts figure the Republican holdouts will fold, and quick. But those experts have been wrong before.
The law’s opponents hope this sort of truculence will harm Obamacare -- and it probably will. But it will do so primarily by harming the resisting states' health-care systems. It’s a classic example of cutting off your nose to spite Obama. And because the law can vary so much state-by-state, the dysfunction in states that fight the law will probably stand out compared with states that genuinely work to implement it effectively. Will governors who wreck their state health-care systems to make a political point look better than governors who, in the course of a single year, cut the number of uninsured in their states by perhaps 75 percent?
Or, to put it another way, California might end 2014 with a high-performing, near-universal health-care system. Texas might end it having made an already troubled system even more of a disaster. Will that reflect on Obamacare, which is working just fine in a neighboring state? Or will it reflect on the Republicans who govern Texas?
That's the key political question. It’s a tried-and-true strategy to regain power by exploiting the rival party’s governing failures. It’s a bit riskier to try to mount a comeback it by exploiting your own governing failures.