John Hood has a compelling piece in this week’s National Review, arguing that governors  should “Say No to Medicaid Expansion.” Even though Obamacare offers states a 100 percent reimbursement rate for newly eligible enrollees, states are rightly nervous about getting stuck with hidden costs:

1. The funding ratio is scheduled to decline to 90 percent by 2019; moreover, given the state of the federal budget, few but the most credulous observers believe that the feds will abide by their commitments.
2. State Medicaid plans rest on the expectation that not everyone who is eligible for Medicaid will actually claim it. Obamacare’s mandates and other mechanisms, however, are expected to drive up participation rates. No one knows how big that “woodwork effect” might be but especially in many relatively frugal states, it could be very significant.
3. Millions of people who would be eligible under an expanded Medicaid will also be eligible for federal subsidies under Obamacare’s health care “exchanges” (assuming they come into existence), at zero financial risk to state budgets. If you’re a state, what’s not to like?
4. Obamacare imposed a “Maintenance of Effort” requirement, forcing states maintain their existing coverage levels (as a condition of participating in the expanded Medicaid program)—or else, run the risk of losing their entire Medicaid funding. Because Obamacare’s architects assumed that every state would in fact opt for expansion, the law lets the MoE expire in 2014. States that decline to participate in Medicaid’s expansion will be free to hack away at their existing programs and obligations. For many states, that moment can’t come soon enough.

Hood explains why these calculations spell the doom of Obamacare’s grand vision. Two additional observations:

Open-Field Federalism. There is no Medicaid law that’s worth paying attention to. Medicaid in any given state is the product of a bargain between state political elites and federal officials. Obamacare  offered a huge carrot (100 percent funding) and a huge stick: if you don’t take our too-good-to-be-true offer, all your money may be gone. The 7-2 ruling in NFIB v. Sebelius has taken the stick off the table: calculations (3) and (4) supra are products of the decision. In other words, the Court has strengthened the states’ bargaining position (and if you want to call that “federalism,” be my guest). Short of John Hood’s “say no” recommendation, the bargaining could produce any outcome. For example, a state might say: “Fine, Madam Secretary: we’ll give you part of your Medicaid expansion, provided you give us a waiver to voucherize our entire system.”  That might actually make sense, but other bargains will be far less palatable. The aggregate outcome is anybody’s guess. 

A Constitution of Limits? “Waive the law and we’ll let you give us more money” has become the general logic of the federal system. Obamacare as practiced consists of little but waivers—of the CLASS Act, insurance requirements, etc. Elsewhere, workfare requirements have been waived. No Child Left Behind has been waived. Across the board, we are left with intergovernmental bargaining in the shadow of purely aspirational or hortatory statutes.

Those “ cooperative federalism” statutes are products of what I have called the “Constitution of Affluence”:  let’s you and I—states and feds—create self-reinforcing systems of intransparency, unaccountability, and fiscal illusions; and let’s tell the voters that the system will work with just one more reform and a lot more money.

The game is up: that’s the true meaning of the unprecedented states-versus-feds Obamacare litigation and, its aftermath. Now that the money is gone—and prosperity is around the corner that’s behind us—states and feds are no longer bargaining over the distribution of political and economic costs and benefits within a system that both want to expand. Instead, they are trying to stick each other with the accumulated welfare-and-subsidy clientele—to move cohorts from Medicaid to exchanges and Medicare, from retirement systems into exchanges, from here to there and back again: anything to get rid of these people. Even the (non-starter) Ryan-Romney plan to “block grant” Medicaid partakes of this orientation: here’s some money for the poor and sick. You take them, and good luck.

This is actually progress (unless you have the misfortune of being a member of the client or perhaps better the target population): at least, our representatives no longer act as if the sky is the limit. The downside is that none of the bargains will prove stable—not so long as the underlying “laws” remain on the books and we keep pretending that intergovernmental conspiracies are a fine way to run the country. Institutions of affluence cannot work under conditions of austerity. We will have to blow them up and start from scratch.