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Here's the real reason Obamacare repeal got crushed

  • Susan Collins had to oppose the Obamacare replacement bill because her state is so poor.
  • Rural economies from Maine to Alaska are hurting, even without health coverage concerns.
  • There are better ways to help those states than just handouts like the Medicaid expansion.

Now that Maine Senator Susan Collins has publicly announced her opposition to the Graham-Cassidy bill, the latest GOP effort to repeal and replace Obamacare looks finished.

Political critics and pundits will blame her decision on everything from CBO scores, to health care concerns, to her seeming lack of loyalty to the Republican Party. But there's really only one reason why Collins rejected this and all the other GOP Obamacare replacement bills this year: Poverty.

Maine is a poor state. The latest Census data shows that Maine has the second highest rate of people taking some form of public assistance. Even compared to its fellow rural New England states, Maine's economy is growing more slowly. And Maine is still the state with the oldest average age per resident, putting health care costs more on center stage. Medicaid is thus a major lifeline in Maine, with about 20 percent of the state's population enrolled in the program, according to my calculations. By contrast the neighboring state of New Hampshire with virtually the same total population, has only about 14 percent of its residents on Medicaid.

Maine is addicted to Medicaid. Obamacare brought a major boost to the number of people now on Medicaid. So Maine is addicted to Obamacare.

And Maine is not alone.

"Many decades of economic decline for the bulk of America's rural states can't be reversed by Obamacare, Medicaid expansions, or anything short of a more sweeping economic revolution in America."

Another likely "no" vote now is Alaska's Senator Lisa Murkowski, just like when she voted against the Obamacare replacement bills earlier this year. Even though Maine and Alaska are literally on opposite sides of the continent, they share extremely similar economic woes. Medicaid is also a major lifeline in Alaska. According to the Kaiser Family Foundation, 32 percent of all children in Alaska are covered by Medicaid, and nearly a third of all federal funds Alaska receives are for Medicaid.

But again, this isn't only because of health costs. It's about the poverty that comes with states like Alaska and Maine that are dominated by rural territory. The U.S. Census Bureau says Maine is the most rural state in America. And Alaska is close behind with 59 percent of Alaskans living in rural areas where the economy has not kept up with the relative strength of urban areas. Rural Americans are much more likely to be disabled, which many believe is not a result of health issues but a lack of economic opportunity as people who are discouraged in their search for work are more likely to file for federal disability benefits.

The ACA's Medicaid expansion has left the country with a whopping 74.5 million Americans currently on Medicaid, according to the latest government reports. That's almost double the 39 million Americans who were on Medicaid just as recently as 2007. And it's a lot of constituents all over the country who now serve as a virtual line of defense for Obamacare. In states where those poorer Americans are counterbalanced by richer residents, their senators can afford to cast votes that would wipe out large parts of the Medicaid expansion or risk transferring the added Medicaid funding to block grants to the states.

That's not the case in states like Maine and Alaska where the rural poor populations dominate the scene, even Republican senators simply don't want to take that chance. Collins and Murkowski aren't going to join in any vote to rescind or cut that aid without a lot of solid cash coming from somewhere else to make up for it. We know the Republicans are trying to do just that by sweetening the Graham-Cassidy's bill's items for states like Maine and Alaska. But for elected leaders who need to get re-elected, the existing bird of the ACA's Medicaid expansion is probably worth two future congressional promises in the bush.

You could throw Kentucky in the same basket as Maine and Alaska, because that state is heavily rural and has 28 percent of its population on Medicaid. But Republican Senator Rand Paul says his reasons for opposing Graham-Cassidy are based on his strong libertarian beliefs and the fact that he says the bill doesn't live up to them. Either that's true, or Senator Paul is finding an ideological excuse to hide the fact that his intentions are exactly the same as Collins' and Murkowski's.

Of course large states like California and New York have a lot more total people on Medicaid and every other form of public assistance. But they also have a lot of wealthy and upper middle class residents and varied economies with heavy industry, financial services, and high tech firms represented all over their states. Yet as big as they are, those states don't get to send their senators to D.C. with any more inherent power than senators like Collins and Murkowski from two tiny states with a combined population smaller than Brooklyn.

So how do we fix this?

Many decades of economic decline for the bulk of America's rural states can't be reversed by Obamacare, Medicaid expansions, or anything short of a more sweeping economic revolution in America. But there are ways to get some economic progress for states like Maine and Alaska through better health care and health coverage policies.

Those ideas include:

1) Tax breaks for rural area health care

One way to ease health care costs for the poor in rural areas and boost their employment opportunities is to make all out-of-pocket health care expenses spent in designated rural areas 100 percent tax deductible with no maximums for all but the richest 1 percent of American customers. That should attract lots of new clinics and even hospitals to rural areas where the need for more health care choices is already a problem regardless of cost. And with those new clinics and hospitals would come a lot of new job opportunities in everything from construction to support staff.

2) Move more government offices to rural areas

Ever wonder why the massive Department of Agriculture is headquartered in the decidedly non-agricultural bastion of downtown Washington, D.C.? What about the Energy Department and the EPA? You get the point. It's past time to move so many of the government offices and jobs meant to service rural America to... rural America. Not only will this improve the local job picture in those areas, but it would probably save taxpayers money on all those trips some of these D.C-based government workers take out into the field.

3) Regulation relief

States like Maine and Alaska are burdened with the high cost of meeting federal environmental and educational requirements and other unfunded federal mandates. No one is saying the states should be allowed to welcome polluters or drastically reduce education requirements. But it's the height of Washington arrogance to believe that's exactly what would happen if it weren't for the wiser heads of D.C. taking control. As long as Washington takes more and more power from the states, the more the states will seek handouts like the Medicaid expansion in return.

Obviously, there's a lot more that needs to be done to lift up the Maines and Alaskas of this country. But these are the kinds of policies that could actually lead to self-sustaining growth. Health care costs and the entire Obamacare repeal debate are just sideshows in poorer parts of this country that need an entire economic makeover, not an insurance battle.

We can either enact those kinds of sweeping policy changes for these states or forever doom them to serious poverty and addiction to D.C. handouts.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.