Analysis: U.S. governors make risky political bet on healthcare funds

WASHINGTON Sun Jul 15, 2012 9:18pm BST

Minnesota Republican Representative Michele Bachmann gets a hug during a ''House Call'' rally against proposed healthcare reform legislation at the Capitol in Washington November 5, 2009. REUTERS/Kevin Lamarque

Minnesota Republican Representative Michele Bachmann gets a hug during a ''House Call'' rally against proposed healthcare reform legislation at the Capitol in Washington November 5, 2009.

Credit: Reuters/Kevin Lamarque

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WASHINGTON (Reuters) - Republican governors bent on rejecting the healthcare law's expanded insurance coverage for millions of low-income Americans may see their gambit backfire if their party fails to sweep the November elections.

Five governors have vowed to opt out of the Medicaid expansion for low-income people since the Supreme Court's June 28 landmark healthcare ruling let states decide whether to participate in the program. Several others, saying the program will be a huge financial burden on states, are leaning toward the same action.

Others hope the November 6 ballot will give Republicans the power to repeal President Barack Obama's signature law altogether, if the party, which currently controls the House of Representatives, gains control of the White House and the Senate as well.

But analysts say if the Patient Protection and Affordable Care Act survives to take full effect in 2014 - a major election year for governors - the hard-liners could come under fire for denying their own residents health benefits that are also worth billions of dollars to healthcare providers and insurers. The results could be dramatic.

"It could change the political dynamics so that the ideologues are no longer running the show," said John Holahan, director of the nonpartisan Urban Institute's Health Policy Center.

A big enough backlash could also raise hurdles for governors with presidential aspirations in 2016.

Gubernatorial rebels on Medicaid include Bobby Jindal of Louisiana and Nikki Haley of South Carolina, young Republican stars viewed as potential vice presidential material. Taking a hard-line stance in the short term may help attract the attention of Republican presidential hopeful Mitt Romney, who has vowed to repeal the healthcare law, and appeal to large numbers of voters who dislike the law.

Texas Governor and former presidential candidate Rick Perry on Monday joined the chorus that also includes Rick Scott of Florida and Phil Bryant of Mississippi.

"I will not be party to socializing healthcare and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government," Perry said.

Medicaid is currently a national healthcare program for the poor that is jointly funded by federal and state governments, with Washington covering about 57 percent of the cost. In many states, benefits are available to working-age parents and pregnant women with incomes well below a federal poverty level of $22,300 a year for a family of four.

The Affordable Care Act would expand coverage to families with incomes of up to about $30,000, aiming to provide health insurance to an additional 16 million people nationwide. The federal government will pay 100 percent of the cost of benefits through 2016, declining to 90 percent by the end of the decade.

In Texas, that could cover as many as 2 million uninsured residents, according to the Austin-based Center for Public Policy Priorities.

"Democratic candidates will undoubtedly use this against Republican incumbents who won't take the federal money," said Larry Sabato, director of the University of Virginia's Center for Politics.

Just three Republican-held governor seats are up for election this year. But in 2014, Republicans will try to hold on to governor's seats in more than 20 states including Texas, Florida, South Carolina, Nebraska and Iowa - nearly a year after states that embrace the law reap federal money for healthcare benefits in earnest.

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The prospect of losing billions of dollars in Medicaid payments could also anger healthcare and business interests in those states and lead them to campaign against the "rejectionists."

Large commercial insurer WellPoint Inc (WLP.N) last week said it would buy Medicaid specialist Amerigroup AGP.N for $4.5 billion, the latest sign of private sector interest in reaping profits from running government health plans. Amerigroup's top Medicaid markets include Florida and Texas.

Some analysts also point out that governors would turn down benefits funded by taxpayers from other states, while leaving their own residents to pay federal taxes that fund reform elsewhere.

Regional income disparities also mean the new Medicaid benefits would be available to more of the population in southern states that are now at the forefront of opposition.

In nine states that have decided to opt out of the Medicaid expansion or are considering the idea, about 29 percent of the population below retirement age have incomes that would qualify for new benefits, according to the Urban Institute.

Florida is a case in point. One in five Floridians is uninsured. Meanwhile, 30 percent of state residents earn annual incomes that would qualify for a Medicaid expansion that would bring an estimated $4.4 billion per year in new federal money to the state, the Urban Institute says.

Numbers like that could spell trouble for the state's governor, Rick Scott, whose job approval rating stands at 39 percent in a recent Quinnipiac University poll.

"He's going to be very vulnerable in 2014. At a minimum, Democrats will see the healthcare issue as a big plus for them," said Susan MacManus, political science professor at the University of South Florida.

But Scott, a political maverick who has already rejected $2.4 billion in federal funds for rapid rail development, could survive by appealing to the state's legion of elderly voters worried about the federal budget deficit.

"There are countervailing arguments including that it would further burden constituents by having to raise taxes, etc., because there would be new costs," said Edmund Haislmaier of the conservative Heritage Foundation.

Jonathan Oberlander at the University of North Carolina School of Medicine agrees: "It depends on how the issue is framed. If they look like they are being fiscally conservative, a rejectionist governor could win."

And hard-line stance may not be about ideology or fiscal discipline. Instead, it could be a bargaining tactic.

Governors may be hedging against an Obama re-election - rejecting Medicaid expansion now to gain a stronger position for future negotiations with the administration in which they could seek to reduce the size, scope and cost of the expansion.

"The political manoeuvring and negotiating between the federal government and the states is really just beginning," said Michael Sparer, a health policy expert at Columbia University.

"And a state puts itself in a very good negotiating position if it says to the federal government that we're not adopting the expansion at this point."

(Editing by Michele Gershberg, Vicki Allen and Sandra Maler)

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