Like Walker, Pence is choosing a health reform route that makes insurance affordable to more people, while at the same time protecting taxpayers from open-ended spending commitments.

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With the implementation of ObamaCare in full swing, several Republican governors have reversed themselves, claiming that political reality is forcing them to play by the health law’s budget-busting rules.  But two of their colleagues – Wisconsin’s Scott Walker and Indiana’s Mike Pence – are blazing an alternative path that signals the key to conservative entitlement reform. 

Since January, GOP governors in Arizona, Nevada, New Mexico, North Dakota, Ohio, Florida and, as of this week New Jersey, have said they will expand their state’s Medicaid eligibility up to 138 percent of the federal poverty line (FLP), the maximum allowed under the Affordable Care Act (aka ObamaCare).   Prior to these announcements, all of these governors were staunch opponents of the controversial health care law, and its costly Medicaid expansion. 

The rationale for the reversal is deceptively simple.  From January 1, 2014, to January 1, 2017, the federal government promises to pay 100 percent of the expansion costs in every state that goes along.  Starting in 2017, states must begin covering an increasing percentage of the costs, topping out at 10 percent by 2020. 

But as I’ve written previously, even though 10 percent may sound like a small number, the true costs of expanding significantly one of America’s most used entitlements will strain state budgets to the breaking point.  Moreover, because the Obama Administration has already indicated that it favors shifting more of Medicaid’s costs to shore up the federal treasury, total spending by the states could range from $41 billion to $120 billion as quickly as 2022. 

Faced with mounting political pressure to take the federal government’s “free” money or risk letting other states reap a windfall, these rhetorical fiscal conservatives are blaming political reality for their dilemma.  Since the Supreme Court upheld the law, what else is there to do?

But a look at two other GOP governors shows alternative paths that share a key entitlement reform insight. 

In a surprise move a week ago, Wisconsin’s Scott Walker did the very best with a bad situation.  When he entered office, BadgerCare – the state’s Medicaid program – was turning away new enrollees because the previous administration had expanded eligibility for childless adults up to 200 percent of FPL.  Unable to afford covering newly qualifying citizens, Walker took advantage of a little-noticed loophole in ObamaCare that gives states like Wisconsin some flexibility in choosing how to comply with the law. 

As reported by Governing, the loophole grants Medicaid coverage to those making up to 138 percent of FPL, but also provides federal subsidies to buy private health insurance on a state-based exchange to those earning between 100 and 400 percent of FPL.  (The program is means-tested, so the value of the subsidy declines the more money a person makes.)  The overlap on incomes between 100 and 138 percent of FPL gives states like Wisconsin a choice of which program to make available to qualifying citizens. 

For Walker, the choice was easy.  Medicaid, in its most basic form, is a two-for-one matching scheme that gives two federal dollars for every state dollar spent on the program.  The health insurance exchange subsidies under ObamaCare, however, are completely funded by the federal government.  By scaling back BadgerCare for childless adults to 100 percent of FPL and making the rest of the previously covered population eligible for federal subsidies, Walker covered almost the same number of Wisconsinites as ObamaCare would have without his modification (224,520 under Walker’s proposal; 252,678 under the law). 

In effect, Walker’s plan lays out a pathway for conservative entitlement reform that increases coverage while at the same time reducing the number of people on a government-run health program.  It even improves cost certainty at the federal level since the health insurance subsidies have predetermined limits, a stark contrast to the open-ended funding commitment associated with Medicaid spending. 

But Walker’s reform isn’t the only conservative response worth pondering.  Indiana’s Mike Pence, building on an initiative pioneered by his predecessor Mitch Daniels, is also charting a fiscally responsible path despite ObamaCare’s sirens. 

Healthy Indiana, a state-based Medicaid program that covers childless adults up to 200 percent of FPL, functions like a Health Savings Account.  Qualifying citizens can use the program to choose coverage and treatment options available to them without having to go through a costly and confusing bureaucracy.  When the Health and Human Services Department told Pence he had to drop Healthy Indiana in order to participate in ObamaCare’s Medicaid expansion, the governor said no thanks. 

Like Walker, Pence is choosing a health reform route that makes insurance affordable to more people, while at the same time protecting taxpayers from open-ended spending commitments. 

In their own way, each governor is providing a lesson to their expansion-embracing colleagues: With some creativity and a commitment to principle, it is possible to increase health insurance coverage without breaking the bank. 

It’s a lesson more GOP governors should learn.