supreme court challenges. the next panel takes up the issue of medicaid and the states. >> is second panel is going to be asking a question that surprised many because the supreme court took it upon itself to reach out for this question. the issue below of whether the medicaid expansion of both the scope of coverage and the actual substantive coverage of medicaid would be constitutional under congress's taxing power was argued below and the courts both the district court and appellate court found against the plaintiffs in that case against the states. but the supreme court thought the issue was serious enough that it reached out on its own

to consider this question and it's no surprise that in the case involving a suit brought by 26 states that to them at least it's a very burning question. and it raises the issue of whether the federal government, congress, through its power to tax can do i'm correctly what it is prohibited from doing directly. in other words, the the federal government cannot directly order states to set up programs for their indigent citizens to help provide for their health care. but if through the taxing power the court can compel states to enter into these nominal relationships, these federal state partnerships, is the question that is before the court and it raises the question under south dakota v dole about whether given that we're talking

about now a program that is the federal government putting to the state the following proposition namely expand your medicaid or you will lose all of the current funds you get from the federal government for your current medicaid recipients as to whether that will be unconstitutional in south dakota v dole the court held that because the imposition amounted to only 5% of the federal transportation funds that came to the states, the compulsion required in urging the states to raise their drinking age from 18 to 21 was not all that great. i think south dakota v dole was wrongly decided, but still they left open, the court left open the possibility that if the

compulsion amounted to more than 5% of the budget and here on average it's about 40%, then you might have a case of using the taxing power co-hersively. that's one of the questions indeed the central question that is before the court in this aspect of its proceedings. we're going to discuss this issue of the implications of obama care for medicaid. first by having our own colleague set forth some of the findings that he has done recently of an imperical sort so you'll have the facts before you before we turn to the lawyers to argue that this aspect of obama care is an unconstitutional and then to sign on laz rus to argue that it is constitutional. i'm going to introduce each of our speakers before they speak unlike on the last panel. and we'll start with our colleague and you'll get to see a power point presentation.

the first one here in the new auditorium using the wonderful facilities that we've just finished creating. he's a senior fellow here at catoo institute. he served in 2002 as a cull tant to the u.s. department of treasury and in 2003 as a visiting scholar of the american enterprise institute. he was a senior economist advisor to the federal reserve bank of cleveland from 1990 to 2003. he holds a ph.d in economics from boston university and is currently a member of the social security advisory board. he has published voluminously in leading academic journals of

economics. his most recent book, which is available outside, he'd be glad to sign it for you if you care to purchase a copy was -- is entitled "social security, a fresh look at policy alternatives" which was published by cato in conjunction with the university of chicago press in 2010. bless welcome him. -- please welcome him. [ applause ] >> thank you very much roger, for inviting me to be part of this inaugural event at the cato stews. i expect the phase of admiring all the new facilities is oaf. that was what the first section was for. now we can focus on some real information. someone also complained about my power point presentation saying it's unconstitutional.

i might note that my decision to use it has nothing to do with interstate commerce. thank you very much. >> for those of you who know me know that i spent most of my career studying and documenting the condition of the federal budget. the information i'm going to tell you is a bunch of projects i recently undertook to precisely the question at home which is what is the likely effect of obama care on state medicaid spending. as you all know state participation in medicare is supposed to be voluntary. over the years the programs and also the federal funding has grown so large that really opting out is not really a practical solution for sate

policymakers. obama care uses fund to force medicaid expansion. the question that the supreme court has taken on is whether it's constitutional for the feds to do that. the bottom line, however, is that this heavily underreported and underrated issue implies that despite the massive federal funding that is forthcoming to support the expansion. two provisions, one the expansion itself and the individual mandate will level state general fund expenditures to sky high levels. that's the bottom line that emerges from my research. so the medicaid expansion part is basically two components. one the income eligibility limit

is raised. and all adults rather than all those with dependent children are now eligible for medicaid. the individual mandate has really nothing necessarily instrinsicily to do with medicaid expansion as such. it's really to accommodate the coverage of those with preexisting conditions to avoid the adverse selection that would go with that. but the interaction of these two elements really spells looming disaster for date budgets. so to understand how that would come act. think about two types of medicaid enroll lees that will emerge once obama care comes into effect in 2013. first of all, those who are newly made eligible for medicaid under obama care, these groups of medicaid eligibles will be 100%, 100% federally funned through 2016. and the federal funding rate

gradually ramps down to 92% by 2019. but still that's a fairly large percentage that the states would incur. the question remains for this level of funding for newly eligible medicaid enrollies will persist given the desire state of the federal budget itself. but that's a separate question. then there's a second group of eligibles. those eligible under the old law. the individual mandate will induce greater enrollment. not everybody who's current eligible for medicaid is currently enrolled in it. but the individual mandate and generally the desire on the most part on the part of most

citizens to follow the law will induce greater participation. there's also other reasons with greater participation. the law envisions enrollment drives, greater subsidies that will encourage people not only those not enrolled in medicaid or have no insurance to enroll into medicaid, it might induce some folks who are privately covered to switch to medicaid. these new enrollees will not be federally funded at the same rate close to the 90% plus after 2017. they will continue to be federally funded only at the ole, that is the current rates, the federal medical assistance percentages which averages about 59% across all states. now i debated a lot about whether to include this slide.

i'm going to bring you this. the way i estimate state medicaid spending under obama care is to track four different factors. three of them is a share. and the share of those who actually receive medicaid benefits. the beneficiaries among the enrollees and finally the rit of medicaid spending per beneficiary. these three shares and that rate of spending each evolve differently, at least in different u.s. states and also within each state evolved differently for people of different age, jend, medical need, income group and so on.

so i incorporate each of these details. projections of these shares and the rate of spending more beneficiary into the future according to historically observed trend and then taking the product of all of these four elements together essentially is a matter to project what would happen in the future under a specific law. so i do this exercise first without obama care in place before the next ten years and then with obama care in place. the difference between those two projections reveals how much additional spending any specific state would incure as a result of implementing obama care. this methodology captures all the different states, policies, their specific demographic conditions and the environment

factors that they have. so bottom line i've done the estimates so far for about a dozen states. i'm not showing all of them. some of them are not really ready for primetime as of. what i'm showing is the top five states california through texas. other five states that are the largest populationwise in the u.s. and then a bunch of other states, some more rural, some more urban, some are sparsely populated. a smattering of states of all kind from the west coast to the east coast, central mid western and to son. the first column of numbers is the number of preobama care enrollees that i estimate or i project for the year 2014. it's shown for just 2014 in this table. and the next column shows the penaltiesage increase that that implies.

these are new enrollees from among the newly medicaid eligible folks. these folks will be mostly paid for. the cost the medicaid costs would mostly be paid for by the federal government as i mentioned. these are are newly eligible. they were made eligible newly by obama care. the next two columns, the red columns show the new enrollees from the old logs eligible. those eligible but not enrolled for other reasons. they're uninformed, they don't need health care, they may have private insurance. all of the different continge y contingenci contingencies. i don't assume that all will enroll. this follows calibrating exactly how many will enroll based on the data again.

and percentage increase and enrollment over the preobama care enrooles except for california most states will experience at least a 10% or more greater number enrollees from among the latter group. this is the source of the increased cost that states will have to foot the bill for. this is the baseline estimate. those are about -- these numbers are about how many more enrollees we'll have. this is an example slide using new jersey as an example. to tell you about the funding increase, or the spending increase under obama care. now in this slide i have a horizontal line in red which is the freeze baseline. it's the defend spending is frozen as of 2013. i'm keeping that cost. just to get a seps of how much additional spending is projected to happen even without obama

care, which is the blue dash line. and how much spending as a result of implementing obama care. so that dotted black line is the projected spending under obama care. now the segments of -- specially the black dotted line have several segments of jump. the first jump just after this solid segment of the line is because the american reinvestment act enhanced federal matching rate disappeared. so states had to spend more on medicaid. beginning in 2014 there's a big ramp up. that's increased enrollment of folks who are eligible and not enrolled in obama care. that will ramp up costs. there's a ramp up in 2017 as a result of the reduced federal matching for the newly eligible

individuals who will be enrolled into medicaid. that explains this chart as you can see in new jersey the addition that is the difference between the top line and the dashed blue line is quite large. so obama care is responsible for the difference in additional spending as a result of implementing it beginning in 2014. and it's a big amount in new jersey is a special case because it has as you can see from the previous chart about 600,000 new enrollees just in 12014 and later up they'll ramp up along with the trend of rising enrollment in medicaid. i've done a bunch of states. i'll show you california, for example. the difference between the blue and the dot line is not great. that happens because in the case of california most of folks who are currently eligible for medicaid are actually enrolled.

it's 90 plus per cent. most californians who are eligible are in the program. in new york looks like new jersey. close to new jersey, not surprising. but there's a considerable ramp up as a result of implementing obama care. same story for texas. you're looking for how big the difference between the blue and black line. florida, texas, oklahoma, nevada, kansas and so on. for most states the ramp up due to obama care is quite substantial. here's a summary of the ten-year cost. this is cumulative spending increase over ten years for the same states. so the first column is again the baseline. so add up the spending if spending per year were flat that's the first column. and the spending without obama care in dollars billions of dollars -- i'm sorry, this must be millions of dollars. that's a mistake. that should be millions of

dollars. it is billions. it's cumulative over ten years, which is why it's a big number. the bold color shows the increase from the freeze baseline. if current law would continue, obama care would not implement it, you'd have a consider ramp up in cost over the freeze baseline. the freeze baseline is artificial just to show how much additional costs we'll pay even if current law were to stay in place if we follow the projections that we see historically. when you add obama care on top of that for most states except for california, the increase in spending ranges from 20% for some states all the way up to 50 innocent in new jersey, which is the state that i've analyzed

that has the largest increase as a result of obama care. obviously the money has to come from somewhere and the question is where is it going to come from. why would you believe believe my projections. let's look at massachusetts which already has a mandate in place. these are mandated spending numbers per capita that's the blue line and as the budget share of the massachusetts general fund budget. so this money is basically what massachusetts residents are paying for not -- doesn't include the federal funds. i've adjusted for the fact that the federal government is providing match, but it's not

reported as a federal match. it's all recorded as part of the general fund. but i'm assuming the match would have been 50 mernt in any case. i'm reducing what is prorted as massachusetts expenditure by 50%. despite that you see a ramp up in spending. now one question is there is a ramp up. you can see that. is it because of the recession? for example in the 2001 episode, the recession caused the jump up in enrollment and spending. is the latest ramp up because of the recession or mom nee care. you can get some idea if you look at all the surrounding states vermont, connecticut, new hampshire and maine. which are in the same region. but from vermont, new hampshire and maine. the lines decline and they show no secular increase or consistent increase over the 2000 decade as is the case with

massachusetts. i went down to the weeds and saw there is an increase in the red line of 2009-2010 is because of the recession because revenues and the size of the general fund reduced considerably, which is why the ratio of the medicaid spending to the total budget went up. connecticut connecticut red line increase is because of the recession. massachusetts there's no similar decline in the general fund it's all because of spending increases. this kind of analysis gives us some clue that the massachusetts increase is not purely because of recession there's a big element of romney care that's causing that increase. i suspect it's because again there were a bunch of nonenrolled el gables for medicaid who are used to enroll

into medicaid once the implement mandate was implemented. so i suspect that these projections are conservative. there's a reason to believe that. not all eligibles are assumed enrolled after 2014 under the obama care case. the formula for deliving the enrollments is based on observed coverage. those who are coveraged under private insurance even though they're medicaid eligible are not assumed to switch. potentially a switch from private to medicaid that would occur and has been observed to occur many the past with public insurance programs were expanded is not assumed to occur in my projections. but that's likely to actually happen. we have these enrollments facilitation drives that will come with the implementation of

obama care. that will be some inducement for people to switch from private to medicaid which is not in these projections. it be potential criticisms one might say other people have found smaller spending increases. but when i look at those studies one thing is clear that their projections are based on the single historical year 2007 taking their enrollment and eligibility and so on rates from the congressional budget office studies. but north the congressional budget office nor these other studies really reveal what how their method works. how exactly they make the projection. they're based on so-called simulations which are like boxes. we don't know what's going on in the simulations. i suspect the elasticities and rates that they use are

hypothetical guesses. it's unclear if the provexs are sufficiently decided as is the case for my projections. another criticism is using the same cost rate for enrollees is inappropriate. people are not enrolled in medicaid because they don't need health care and they would continue to not need as much health care if they were induced to enroll under the individual mandate. as one study has shown when people enroll into a health insurance program, their utilization and the cost per enrollee tends to converge to the utilization and cost of people who have already enrolled in the program. lifkly it's true that the usually underestimated cost increases when government health

programs for health has been expanded. i'll wind up by saying it's a very expensive unfunned mandate on the states. these estimates certainly are not very precisely estimated. they come with a lot of uncertainty. my suspicion is the estimates have shown you the turn out. i suggested maybe we could actually allow obama care to go through just to validate my projections. it's a looming fiscal disaster for the states. it basically sucks off money from other state priority or put tremendous additional burden on tax pairs. thank you. [ applause ] >> thank you very much. we're heard the effects of obama

care's medicaid aspects on the states. states that are stretched thin. we're going to turn to the legal aspects. to the question whether congress can compel straits to expand their medicaid roles and coverage, using the taxing power to do so with the threat if the states do not do so, then they will lose all their currently receive from the federal government for medicaid. meanwhile, their taxpayers will have to continue paying federal taxes so that citizens and other states will enjoy medicaid coverage. to argue from the plaintiffs' side the 26 states, we're going to hear first from simm sand ford and for defense from simon. tim is a principal attorney at

the pacific legal foundation in sacramento, california. as the lead attorney in the foundation's economic liberty project he works to protect businesses against abusive government regulation. he's the author of two books both published by the cato institute. corner stone of liberty, property rights in the 21st century. and the right to earn a living, economic freedom and the law as well as some 40 scholarly articles on suck jekts ranging from eminent domain and legal issues of vaifry and the civil war. i understand he's joust got an article on shakespeare. he is truly a renaissance man. and unbelievably prolific for someone so young. he's a graduate of hillsdale college and he is also a graduate of the chapman university school of law and he's an adjunct professor of law at the mcgeorge school of law in

sacramento. please welcome tim sandford. [ applause ] >> as you know most of the attention on the obama care is on the constitutionality. if congress can force people to buy insurance under the commerce clause, what can it not do? that would in theory expand federal power to the point it could do anything it wants. a very similar issue is presented when we talk about the medicaid expansion. that is done under different clause of the constitution the taxing and spending power of the constitution. if question here is whether congress has any limits at all. the federal government spends money by giving it to states. it says to the states if you want this money you have to comply with our requirements. the question then arises what kind of conditions can the federal government put on the