07/12/2012 10:09 am ET Updated Sep 11, 2012

A Tale of Two States: California and Texas Will Show How Well ACA Works

As the right grumbles and gossips about Chief Justice John Roberts' majority opinion upholding the Patient Protection and Affordable Care Act (ACA) and the left largely celebrates and ponders it, the response of our two most populous states -- California and Texas -- will ultimately test the effectiveness of the country's grand experiment in health reform.

With over 7 million uninsured residents, California is taking advantage of every incentive provided under the ACA to increase access to health insurance -- expanding Medicaid to 400,000 childless adults even before the 2014 requirements and full funding take effect, aggressively building a state health exchange and developing a public awareness campaign to drive up enrollment.

Texas, with nearly a quarter of its 25.6 million people living without health insurance, is using all of the flexibility provided by the Act, and the Court's interpretation of it, to keep coverage at the status quo. The Lone Star State is refusing to accept federal funds to expand Medicaid and refusing to build a state health exchange to provide residents an easy-to-access marketplace to buy private insurance -- which is offered, by the way, with federal subsidies for those making under 400 percent of the poverty line, $76,360 for a family of three.

On its face, you might attribute these decisions to pure red state/blue state politics. And you might be right. Texas Governor Rick Perry's letter to the Obama administration, rejecting the Medicaid expansion and state health insurance exchange, was filled with enough swagger to make the Tea Party swoon. He opposed the two provisions as "brazen intrusions into the sovereignty of our state," and he thanked "God and our nation's founders" for the right to "reject the PPACA power grab." He insisted that neither provision "under the Orwellian-named PPACA would result in better 'patient protection' or in more 'affordable care.' "

Rhetoric aside, it's clear that Governor Perry and Governor Jerry Brown of California have deep-seated differences in how they view the role of government and its ability to spur economic growth.

Both states are responding to the Court's decision amid serious state budget woes. California is expecting a shortfall of $15 billion in the next fiscal year, and Texas faces a $9 billion deficit. The question for both governors is not only whether it is the responsibility of government to help improve the health and well-being of their most needy citizens, but how such a decision impacts the ability of the state to assist citizens in other ways.

Governor Brown was silent on the budgetary impacts, simply applauding the Court's opinion. But just days before, he signed a budget with $1 billion in cuts to the state's Medicaid program, Medi-Cal. Governor Perry suggested that implementing the ACA could "threaten even Texas with financial ruin."

So who is right? Will the ACA improve the health of Californians and aid in its economic recovery, or will it lead to "financial ruin"?

Let's start with the question of "financial ruin" versus economic boost. Medicaid is funded by federal and state dollars, and overall spending has grown in recent years. Still, most of the money comes from Washington. In 2010, for example, approximately 61 percent of Medicaid spending in California came from federal dollars while Texas received 70 percent.

But will the Medicaid expansion push states to spend more of their own dollars, thus raiding their budgets for other priorities?

Remember, the feds have agreed to pick up 100 percent of the tab in the first three years, scaling back to 90 percent starting in the fifth year. Justice Ruth Bader Ginsburg, in her dissent, noted that "the Congressional Budget Office projects that States will spend 0.8 percent more than they would have, absent the ACA... [W]hatever the increase in state obligations after the ACA, it will pale in comparison to the increase in federal funding." Chief Justice Roberts dismissed this projection, suggesting that it didn't account for an increase in state administrative expenses and adding with evident sarcasm, "It is not unheard of, however, for the federal government to increase requirements in such a manner as to impose unfunded mandates on the state."

Texas may have a valid reason to refuse federal funds down the line if Congress reneges on its promise of funding. But in evaluating the program today using the Budget Office projections, will the creation of jobs and the savings from reduced spending on uncompensated care make the trade-off worth it?

Research suggests the answer is "yes." Studies have considered the economic impact of implementing the ACA with its Medicaid expansion and found that, as a full package, the economy grows along with jobs. A new report by the Bay Area Council, a business-sponsored public-policy organization for the San Francisco Bay Area, estimates that the "full implementation of the Affordable Care Act as compared to the non-reform scenario in 2010 would have resulted in 98,861 new jobs in California... and $4.4 billion in additional gross state output." This projection is further supported by a study of Massachusetts health reform, published in the New England Journal of Medicine, showing that health care employment in Massachusetts grew by 9.5 percent in the five years from the start of reform, compared with 5.5 percent nationally. In addition to job growth, the experience in Massachusetts also showed that the expansion of Medicaid decreased the costs to state and local governments of uncompensated care by 38 percent in the first full year of implementation.

In addition to the economic boost, California recognizes that individuals with health insurance generally have better health outcomes. On every single health measure, California outperforms Texas: lower blood pressure, lower obesity and smoking rates, greater consumption of fruits and veggies, more leisure time dedicated to physical activity, and greater access to preventative care, from cholesterol screenings to routine check-ups to dental visits.

In medicine, it is unethical to conduct an experiment in which one patient gets medicine that clearly works and another does not. But, alas, this isn't medicine. It's pure politics. Instead of wringing our hands, we will let our system of federalism play out, with states like California and Texas acting as the laboratories of democracy.

We'll know soon enough just how the Affordable Care Act is working.