The Governor of Nevada estimates that Obamacare will add over $600 million to the states already large $868 medicaid expense. The Las Vegas Sun is reporting the Gov. Gibbons is mulling over the rejection of  federal Medicaid funds and pulling out of the system all because they are afraid of the extra costs associated with Obamacare.  Granted, Nevada could lose $1.7 billion in federal dollars, but the governor argues subsidies to help poor buy policies that would replace direct coverage and Nevada could come out fiscally ahead.

[State] Health and Human Services Director Mike Willden was asked to “take a serious look” at opting out of the massive federal program this week. Triggering the interest is concern about the health care reform bill being debated in Congress, said Stacy Woodbury, Gibbons’ deputy chief of staff.

The state has estimated that the federal requirement to expand Medicaid under the bill will cost Nevada $636 million from 2014 to 2019, when the 100 percent federal subsidy in the health care reform bill expires.

Woodbury says that dropping Medicaid is not as dire as it sounds, citing a report from the Heritage Foundation.

The report predicts if Obamacare is passed every state except North Dakota would be better off fiscally if they dropped Medicaid, and the action would be totally legal:

…state participation in Medicaid is entirely voluntary. Medicaid is fundamentally “a cooperative federal-state program through which the federal government provides financial assistance to states so they may furnish medical care to needy individuals. … [P]articipation in the program is voluntary.” States opted into Medicaid, and they can opt out.

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Congress clearly fears that with the creation of the new entitlement, states would respond by lowering Medicaid eligibility. Hence, both the House and Senate attempt to prevent such state action by imposing “maintenance of effort” (MOE) requirements on the states.

If all states withdraw from Medicaid, their collective savings would be $725 billion over the 2013-2019 period, but they would exceed $1 trillion over 10 years. This assumes that states will continue to spend at least 90 percent of what they spend now on Medicaid long-term care services with state-only dollars. On a state-by-state basis, every state except North Dakota would come out ahead financially by leaving Medicaid but continuing long-term care spending with state-only dollars. Of course, if North Dakota reduced its long-term care spending, it too would come out ahead.

The plan would be, Instead of  Medicaid the poor would be eligible for federal subsidies to buy private insurance on the health care exchanges. What the state would have paid for Medicaid, $868 million over the next two years, would be used to pay health care premiums for the elderly, blind and disabled, said Woodbury, who also said that nothing’s been decided, the governor’s staff is still just looking at the option.

Judith Solomon, senior fellow at the liberal think tank Center on Budget and Policy Priorities, said subsidies wouldn’t cover 100 percent of the cost of private health insurance. That would mean poor families would have to pay a portion of the premiums.

Even a seemingly small amount — $440 a year for a family of four that makes $22,000 a year — has been shown to be a major obstacle to the poor getting treatment, Solomon said. That would mean thousands of poor people without insurance would seek health care in emergency rooms and hospitals, costing taxpayers and the insured more money in the long run, she said.

…Geoffrey Lawrence, a fiscal analyst for the libertarian Nevada Policy Research Institute, said increasing Medicaid costs and mandates mean the federal government is dictating to states how to spend money. Almost 30 percent of the state’s general fund is spent on Medicaid, he said.

Opting out, Lawrence said, “is probably the best response to (health care reform) from the standpoint of state government.”

Edmund Haislmaier, a senior research fellow in health policy studies at the Heritage Foundation, said the report he co-wrote is predicated on the idea that state legislators would not opt out of Medicaid if it would leave massive amounts of people without health insurance.

“We assumed, for reasons of politics or being nice people, that state lawmakers would not go in this direction if they found it would significantly adversely affect people now dependent on the program,” Haislmaier said. He wrote the paper with Dennis Smith, who was the head of the federal Medicaid program under President George W. Bush.

The conclusion of the paper is that, “If all states withdraw from Medicaid, their collective savings would be $725 billion.”

Solomon, with the Center on Budget and Policy Priorities, pointed out that the Heritage Foundation memo had been around since Dec. 1, but as far as she was aware, no other state had taken it seriously.

 Beyond the controversy over what the governor does or doesn’t do with Medicaid, the real lesson of this item is the extent to which Harry Reid is out of touch with his state.  As he helps President Obama push through his healthcare initiative, Nevada is fearful of the financial disaster the plan would cause.  Its no wonder that he is so far down in the Polls.