Obamacare’s Economically Destructive Welfare Expansion


The Supreme Court struck down Obamacare’s mandatory Medicaid expansion as an unconstitutional commandeering of the states, setting off bruising battles over the issue in state capitals. No place has been more brutal than Maine, where a liberal attack group actually sent out a mail piece criticizing Dale Crafts, a wheelchair-bound state legislator, because he “failed to stand up to Gov. LePaige.”

Phil Kerpen1

Crafts, in turn, provided a powerfully succinct argument against expansion:

“I voted against Obamacare’s welfare expansion because I go to work every day in my wheelchair, and I don’t think I should be paying extra taxes just so able-bodied young men can get free Medicaid.”

By accurately referring to Medicaid as welfare – and it was already by far the country’s largest means-tested welfare program before Obamacare – Crafts was able to cut through liberal efforts to tug at heartstrings. The policy question, as with any welfare program, is not whether it would be nice to give free things to poor people. Real life is never that simple. It is whether circumstances justify taking money from hardworking taxpayers and redistributing it to those who cannot or will not provide for themselves.

Medicaid has not historically covered able-bodied childless adults. Under the expansion, it would. Morally, that means forcing people who work to subsidize those who could, but choose not to; most Americans think that’s wrong. But it also means punishing people who move off the rolls with the loss of their benefits, which creates a dependency trap. That’s very wrong, and it was the core of why the public so strongly supported the welfare-to-work reforms of the 1990s.

That dependency trap also has major economic implications, because it means a smaller labor force and less economic growth.

A new study by Laura Dague of Texas A&M, Thomas DeLeire of Georgetown, and Lindsey Leininger of the University of Illinois-Chicago has quantified the impact. They analyzed labor market data from Wisconsin – which added childless adults to Medicaid but then froze the expansion, creating a natural experiment – and found that going onto the Medicaid rolls “leads to sizable and statistically meaningful reductions in employment.”

Specifically, they found that enrollment reduces the likelihood of employment 2.4 to 5.9 percent in difference-on-difference models and 6.1 to 10.6 percent in regression discontinuity models.

The authors, with some caveats, estimated the national labor market impact of Obamacare’s Medicaid expansion and it isn’t pretty: “For example, if 21.3 million additional adults gain Medicaid coverage following the ACA expansions, then approximately between 511,000 and 2.2 million fewer individuals will be employed as a result of the labor supply response.”: :  :  :  : 

It wasn’t so long ago that both parties agreed on the policy objective of shrinking the welfare rolls by moving people into jobs. Indeed the 1996 reform of the old Aid to Families with Dependent Children (AFDC) has been so successful that Democrats now prefer to pretend Bill Clinton – who twice vetoed the bill before reluctantly signing it the third time – was its driving force.

Less than two years ago, President Obama was howling in protest at any suggestion that he intended to undermine the work requirements that transformed AFDC.

So it’s head-spinning to see Obamacare’s Medicaid expansion, which has no work requirements and will add far more people to the welfare rolls than reforming AFDC ever took off, enjoying universal Democratic support and, increasingly, support from state-level Republicans too.

Federal funding is not free money for the states; it comes from the pockets of hardworking taxpayers. And it should not be spent on adding able-bodied childless adults to the welfare rolls and giving them a disincentive to work.

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