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Vanderbilt law professor James Blumstein’s presentation at AEI this week laid out an interesting legal challenge to the federal expansion of Medicaid in the Patient Protection and Affordable Care Act (PPACA). Blumstein maintained that Medicaid’s state-federal partnership can be viewed as an ongoing contract, in which terms are clearly defined at the outset, but modifications can be made as the program evolves. He argued that this newest Medicaid expansion, which extends coverage to individuals below 133 percent of the Federal Poverty Line and requires states to maintain these persons’ eligibility and benefit levels until at least 2014, changes the nature of the contract and functionally coerces states into accepting its terms (Blumstein defined this as choice-set coercion). For states, which rely heavily on Medicaid for administrative infrastructure and healthcare delivery, the choice between opting out or using funds (albeit federally subsidized) to implement the eligibility expansions is illusory at best.

Blumstein’s legal argument underlies the curious economics behind the Federal Medicaid Assistance Percentage, also known as the Medicaid match. Based on per-capita income, states receive varying degrees of federal money for every dollar they put into their programs. This “buy one, get one free” mentality has encouraged many states—most notably, California and New York—to expand categorical and income eligibility and enhance benefit levels for beneficiaries (in some cases, tricky accounting gimmicks allow them to receive free federal funds not linked to Medicaid). But there is a catch: if a state wants to scale back the program, it must also give up that same corresponding amount of federal money. In other words, “save one dollar, and lose two more.” The Medicaid match has, at times, proven a toxic incentive structure for an entitlement program—one that has unwittingly fostered a state dependency on federal funds and reinforced spending growth for its own sake.

Blumstein fittingly described it as a “political narcotic effect,” noting that “it makes it excruciatingly difficult to phase down a program like this and politically very difficult … once you’re in, it’s hard to wean yourself from these cooperative federalism programs because of the hit you take on the way down.”

There are an infinite number of ways a law can become incorporated into the deep-seated machinations of government and society. Forty-five years later, states seem to have reached a contractual point of no return with Medicaid. But given its expansive nature, it is a safe bet that we will hit PPACA’s threshold well before 2055. For analysts, administrators, and policy makers who have witnessed Medicaid’s evolution, this sort of thinking surely provides an added level of urgency to the law’s pre-2014 legal challenges.

To read more about issues and disparities in Medicaid financing, see AEI scholar Bob Helms’ 2009 outlook. Go here for video of and slides from yesterday’s event.

Rohit Parulkar is a research assistant in health policy at AEI.