Think College Is Expensive Now? Wait Until ObamaCare
Posted 08:05 AM ET
Parents and students facing sky-high state-run college tuitions aren't likely to be thinking about ObamaCare.
But perhaps they should, since if left in place ObamaCare will likely end up making college still more expensive.
Why? Because ObamaCare relies heavily on Medicaid — the federal/state program that provides health insurance for the poor — to expand coverage.
But Medicaid is already swallowing up state budgets, forcing states to cut back on everything else, especially support for two- and four-year public colleges.
"The two biggest items of every state budget are Medicaid and education," Senate Minority Leader Mitch McConnell, R-Ky., told IBD recently. "As the Medicaid mandate rises, the educational funding declines. That is passed on to universities and they raise tuition in order to make up for it."
A report from the State Budget Crisis Task Force found that even before ObamaCare kicks in, Medicaid costs have been growing "faster than the economy" and "faster than state revenue." As a result, Medicaid now consumes 24% of state funds, and its ongoing growth "can no longer be absorbed without significant cuts to other essential state programs like education."
It's a problem President Obama should have known about when designing ObamaCare, since his own budget director at the time — Peter Orszag — had co-authored a 2003 paper for the Brookings Institution looking at this issue.
Orszag concluded that "primarily due to rising state Medicaid obligations, parents and students have been asked to pay an increasingly large share of the costs in public higher education."
Medicaid Vs. College
According to the Budget Crisis Task Force, over the past decade, Medicaid costs have climbed an average 7.2%, nearly double the growth rate of tax revenues.
At the same time, states have steadily shifted the burden for college onto students and parents. Today, tuition accounts for about 40% of the costs, up from 23% in 1985.
And as a result, the cost to attend a public four-year school climbed 46% in real terms in the past decade, compared with 30% for private four-year schools, according to the National Center for Education Statistics.
States have tried to rein in their Medicaid costs — 13 states are imposing various cuts this year — but costs continue to outstrip state budgets, and states complain that federal mandates make it too hard to effectively reform their Medicaid programs.
For most states, ObamaCare will make it still harder.
As the National Conference of State Legislatures explained, under ObamaCare "many states will find the cost of their Medicaid programs will be higher."
Backers of the health reform law say it shields states from the cost of ObamaCare's huge Medicaid expansion, which would make 17 million more people eligible by requiring states to sharply raise Medicaid's income limits. Under ObamaCare, the federal government will pay 100% of the costs of these newly eligible enrollees for the first three years, with states picking up just 10% of the costs by 2020. (The Supreme Court gave states the option to say no to this deal.)
The Old Eligibles
Even so, ObamaCare will end up increasing Medicaid costs for most states.
First, in addition to expanding Medicaid, ObamaCare aims to bring in a huge number of people who are already eligible for Medicaid but don't bother to sign up. There are roughly 13 million people in this camp, and for every one of them who joins Medicaid, the federal government would only cover only about half the costs, not 100%.
A study by the Center for Healthcare Research & Transformation found that more than a third of those added to Medicaid in Michigan in 2014 will be these "old eligibles," and a Cato Institute study finds that ObamaCare will add 2.6 million "old eligibles" in just the five biggest states.
State budget directors also say ObamaCare will impose new administrative costs on states, according to a Government Accountability Office survey.
While some states could end up saving Medicaid money because of how they currently run their programs, the Kaiser Family Foundation says the law will boost average state Medicaid costs 1.4%. The Cato study finds that some states could see Medicaid costs climb as much as 30%.
In any case, the Budget Crisis report notes that the law "will not change the fundamental imbalance between rising Medicaid costs and state revenues."
This means ongoing public college tuition hikes to make room for the continued Medicaid cost explosion.
Mitt Romney's approach to Medicaid, meanwhile, is diametrically opposed to Obama's.
In addition to repealing Obama-Care, Romney would turn Medicaid into a block grant, with the federal government giving states a fixed amount of money and offering them maximum flexibility to figure out how to best provide health benefits for their poor.