We're Still a 'Donor State' with Medicaid Expansion

Legislators should avoid spurious arguments to defend votes

In justifying his Medicaid expansion vote in Michigan Capitol Confidential, Rep. Al Pscholka, R-Stevensville, argued that this would prevent Michigan from being a "donor state" — whereby Michigan taxpayers send more money to the federal government than it receives in transfers to state programs and federal spending in Michigan.

However, a study by the RAND Corporation says otherwise.

In analyzing the economic effects of a Medicaid expansion in Arkansas, the study's authors came to a rather common sense conclusion on the impact of transfers: only very poor states like Mississippi, New Mexico and Arkansas would receive higher net transfers from the federal government under Medicaid expansion.

The reason is simple: all people earning up to 138 percent of the poverty line would be covered by Medicaid under the expansion. Since the bulk of this is paid by transfers cycled through Washington, only the very poor states win. The federal government has minimal ability to collect revenue from outside the country, so transfers are largely a zero-sum game among the states.

Michigan went through a decade-long recession where the state's poverty levels surged, but it is not quite at national-leader levels. It's unclear whether the state's recent economic recovery is enough to lower poverty rates here.

If the purpose of expanding Medicaid is solely to increase the state's federal transfers, then the state may have wanted to do nothing. Many of the people covered by the Medicaid expansion would be eligible for federal subsidies to purchase health insurance on the exchange. These subsidies tend to be far more generous than the average costs of Medicaid. And it would give those people access to real health insurance.

There are plenty of reasons to oppose the Medicaid expansion. Legislators should consider those instead of making spurious arguments to support it.