With the Supreme Court ruling that states have the option to opt-out of the Affordable Care Act’s Medicaid expansion and several Republican governor already saying they will opt-out, now is a good time to push for fully federalizing the program.

Obviously, perpetuating the political fight with Red States, when the result could cost millions of people coverage, is reason enough to end the failed federal-state partnership design.  But beyond politics there is a huge economic reason we should want this change. It is a frankly very bad policy and economics to have states involved in funding Medicaid.

The ACA was meant to turn Medicaid into basically a true universal social safety net program for those below a certain income level. If it is fully and properly implemented everyone who falls below 138% of the federal poverty level should automatic qualify. What this means, though, is that spending on Medicaid should spike during economic downturns and drop during good times. When unemployment rises, many of the people who lost their jobs could end up qualifying for Medicaid.

This is different from most other things the states fund like law enforcement, education, DMV, etc… where the amount that must be spent on them doesn’t really fluctuate much based on economic conditions.

This need to increase Medicaid spending in bad economic times is uniquely horrible for state budgets, because they are required to balance their budgets every year, but a slow economy means less tax revenue. Right at the time when states need to spend more, they have less to spend. Even if the states keep Medicaid properly funded, it means they will be forced to dramatically cut other public programs, such education, fire and police.

It is basic Keynesian economics that you want to increase spending especially on the social safety net programs during economic downturns.  Instead, the idiotic design of Medicaid’s funding forces the exact opposite. This is the worst thing for a bad economy.

Only the federal government with its ability to run deficits is capable of this counter-cyclical spending on the social safety net when it is most needed.  That is why beyond ending the political fights, it would also be best for the economy to have Medicaid completely taken over by the federal government. The current federal-state partnership design of Medicaid create unnecessary political problems, is bad policy and hurts the economy. It is well past time to fix it.