By Martha Heberlein

An idea has been floating about suggesting that states that don’t want to comply with the new Medicaid provisions will simply “opt out” of the program. While much of the recent chatter has centered on Texas, Governor Freudenthal of Wyoming asked his Department of Health to examine the issue back in March. The report the Department of Health released in September provides some insight on the economic impact of such a move.

Let’s start with the basics of their report –

• As the largest source of federal support to the states, Medicaid is a major driver in the economy, funding both state and local government agencies. Opting out would decrease their revenue base and take needed dollars out of the state economy. At the same time, the resulting loss of coverage will increase costs to counties as more uninsured individuals are forced to seek indigent care.
• Medicaid funds also enable states to fill the gap in coverage when children and families lose coverage as a result of the economy. Beyond that, it allows the state to respond to emergencies as well as an aging population. While some of the folks losing coverage under an opt-out scenario may find other options under health reform, for this low-income population, coverage will likely be unaffordable (only those with incomes above 100% of the FPL are eligible for exchange subsidies) and may not offer them the benefits they need.
• On the other side of the equation, providers, such as doctors, hospitals, and nursing homes, could see a reduction in payments of up to $250 million a year. The impact would be felt greatly in long-term care services, as Medicaid is the primary source of revenue, accounting for 63% of total nursing home expenditures.

The consequences of such an action reveal that it’s more of a dropping out than an opting out–a fiscally irresponsible action that would make a political statement but create significant hardship for the citizens and providers that rely on the money that Medicaid brings into the state.  A multitude of state agencies are also touched by Medicaid dollars and it’s important for a state to consider the trickle down effect such a decision would have. There are some pretty obvious ones, for example a significant portion of mental health and substance abuse services are paid for with Medicaid funds, as are pregnancy and family planning related services. However, there are others like the Office of Health Care Licensing, an important watchdog agency that protects the health and safety of all Wyoming residents by conducting on-site inspections and complaint investigations of health care facilities that may not immediately come to mind.

As the report concludes, “because Medicaid has been in place as a significant payer source within the health care industry for so long, much of the industry touches the program in one way or another.” Dropping out of Medicaid would not only impact those receiving coverage through the program, but providers and state agencies would also feel the pinch of a lack of federal financial support.  When policymakers take the time to think about it, it’s a foolish choice and one that will only serve to destabilize their state economies and their health care systems.