Editorial: More than one way to kill Obamacare

States, by opting out of expanded Medicaid and selling subsidized insurance, could bankrupt program.

THE ORANGE COUNTY REGISTER

Some of the most onerous obligations of the illogically named Affordable Care Act, aka, Obamacare, may yet be defeated.

When the U.S. Supreme Court upheld Obamacare's constitutionality by curiously deciding its penalty for not buying health insurance is really a tax, justices also said something that made more sense: States may opt out of the law's costly expansion of Medicaid – the government health insurance system for the poor – without losing existing Medicaid funding, as the law threatened.

States can save tens of billions of dollars by not expanding Medicaid coverage (known as Medi-Cal in California) to people who earn as 133 percent of the poverty level, and to childless single men. Although Washington would pay 100 percent of the added costs in the first year, and 90 percent beginning in 2020, state budgets still would face huge additional costs.

Not surprisingly, six states already have opted out. Texas announced this week it will refuse to join the Medicaid expansion and also will not establish a health insurance exchange, another provision of the law. More states may join them. It is likely Republican-governed states will opt out, while Democratic states may not, the libertarian Cato Institute's health policy expert Michael Tanner suggested to us.

Unsurprisingly, Gov. Jerry Brown's administration praises Obamacare, and California in 2010 was the first to create an exchange – a state-run market of sorts for consumers to shop for federally subsidized insurance.

The practical effect is that California's already overly generous Medi-Cal benefits will become more generous, while other states' will be relatively less so. Adding patients to Medicaid, with its notoriously low fees for doctors, may prompt physicians to leave blue states for red states, or more of them to refuse to accept Medicaid patients altogether.

Politically, changes may be more substantive. Mr. Tanner tells us states refusing to expand Medicaid not only will save billions, but they can save millions in operating costs by not creating insurance exchanges.

Obamacare provides for the federal government to set up exchanges, and pay to run them, in states that refuse to. According to Mr. Tanner, a federal government-operated exchange is likely to attract people Obamacare intended to cover with the Medicaid expansion. They will seek coverage through the exchanges because Obamacare requires them to have insurance.

But the federal government's subsidy for exchange-provided insurance is costlier than its subsidy for an expanded Medicaid program. If all 50 states were to opt out of expanding Medicaid, the net increase to the federal government could be as much as $100 billion a year, according to Mr. Tanner.

Even Obamacare's 20-plus new taxes don't cover this. A Republican-controlled House of Representatives, already threatening to defund Obamacare, isn't likely to OK an additional $100 billion.

The best news is that Washington cannot offer subsidies for insurance sold through federally run exchanges, only through state-run exchanges. Those subsidies are what trigger the penalty for employers who don't provide employees insurance. Mr. Tanner says that means states choosing not to run their own exchanges consequently can avoid the employer mandate to insure employees or pay a fine, one of Obamacare's most onerous provisions.

The bottom line is that states opting out of Obamacare's Medicaid expansion and insurance exchanges may effectively bankrupt the program, even if Congress doesn't repeal or defund it.