I received an interesting question from a friend that I think is worth discussing a bit.

“Hey D.J.

I have what may be a silly question regarding the process of health care reform. Rather than drafting bills that effectively create an entirely new and additional system, why hasn’t the notion of expanding medicaid by eliminating age and income restrictions been discussed (maybe it has and I haven’t heard). It seems that it would be an easier avenue to garner support for increased medicaid spending, rather than creating what the Rs consider ‘bigger government.’ “

The primary reason a “Medicaid for all” system has not been promoted is that it’s not feasible given its own structure.

Medicaid covers primarily low-income individuals and, in many cases, large populations of children. The funding model is a hybrid of federal and state dollars, the proportions of which vary from state to state. And therein lies the rub.

To expand Medicaid would mean a large unfunded mandate to the states to pick up part of the cost of those lives. Most states simply don’t have the support of the electorate to increase taxes enough – or cut other services – to get enough money for the program’s expansion. The alternative would be that the federal government could pick up the tab, but with deficits already looming, and more likely to come with reform, it’s not likely the federal government would be willing to do that.

In fact, you’re seeing some of this play out already in this reform bill. Part of the reform package does include an increase in the income levels that trigger Medicaid eligibility. In the near term, meaning the next few years, the reform package includes monies for states from the federal government. However, those dollars gradually decline over time.

For instance, in the Senate Finance Committee whitepapers produced in April, they suggest increasing Medicaid eligibility to 150% for pregnant women, children and parents. The federal government would pay for that increase until 2015 at which point it would shift over 5 years to the states.

There isn’t a state in the country happy about that cost-shifting, unfunded mandate on its way. In some proposed cases, eligibility can run up to 400% of the federal poverty line – an even greater burden on its way for states.

Some governors are starting to pick up on this pending cost-shift, and are vocalizing their concern, as was reported in the NY Times a while back. It appears to be a pretty modest level of noise, but I have a feeling the comments will be loudest after the fact a few years down the road when states have to start picking up the tab.