The South Carolina Senate is poised to pass legislation to authorize South Carolina to take over all federal health care programs and repeal all federal health care laws and regulations. That would end Medicare, the health care program for persons over 65 or with disabilities, as we know it. The legislation got Second Reading last week on a 25-13 vote.

This bill signs South Carolina up for the Interstate Healthcare Compact, the brain child of conservative activists opposed to the Affordable Care Act. Congress must give permission for this compact to take effect. So, at this stage, state’s passing legislation to join these compacts is a feel-good exercise in the anti-Affordable Care Act drama.

Under that Compact, South Carolina could “… enact legislation to suspend the operation of all federal laws, rules, regulations, and orders regarding health care that are inconsistent with the laws, rules, regulations, and orders adopted by the member state pursuant to this compact.”

After giving up control of health care, the feds would continue, in compact states, to fund it at the level of health care spending in South Carolina in Federal Fiscal Year 2010. Those numbers are adjusted in the future based on population and an inflation factor. In 2009, Medicare provided $7.2 billion in payments for over three-quarters of a million South Carolinians and the federal contribution to Medicaid spending was $4.0 billion for over 800,000 among us.

As the proponents, the Health Care Compact Alliance, note: “Healthcare policy is about who and what is covered. The Health Care Compact is about who decides.” They are selling a pig in a poke.

However, we have seen in the recent US House Budget, what conservatives are thinking about both Medicaid, the joint federal-state program for lower income Americans, and Medicare, the federal program for seniors. For Medicaid, they would block grant it to the states, much as this compact would. States could then design their own solutions for good or ill. The House would transform Medicare by creating a health insurance exchange where new seniors would purchase private or federal health insurance with vouchers.

As Edwin Park of the Center on Budget and Policy Priorities in Washington, DC, observes of Medicaid block grant proposals: “In particular, [block grants] would shift costs and risks quite significantly to the states, to tens of millions of low-income Medicaid beneficiaries, and to the health care providers that serve those beneficiaries.”

Proponents argue block granting is an opportunity to use “states as laboratories” to develop better ways to address health. Matt Salo, Executive Director of the National Association of Medicaid Directors, is reported describing block grant talk as a “distraction. The real issue, as the president said to [governors at their Washington meeting] is, if there are Medicaid flexibilities we can do, let’s do them.” States routinely seek waivers to Medicaid rules to try what they believe are better ways.

Such experimentation could include turning health care over “to the free market”—totally ignoring the market failures inherent to health care, adverse selection and moral hazard. In South Carolina you add in market-distorting presence of an 800 pound gorilla, Blue Cross. Kenneth Arrow, Nobel Laureate economist, observed in 2005:

The problem then really comes down to the fact that the government is better than the private sector at keeping costs down- for insurance purposes. This isn’t true in any other industry. If, for example, you are trying to produce electronics, you could hardly do worse than have the government run such an industry. But, in an insurance program, it’s a different matter.

With no guarantees that the federal funding formulas will keep up with medical inflation or changing age structures in the population, states like South Carolina are more likely to turn to the time-tested tools for cutting costs. Those are: changing eligibility standards so that fewer people are enrolled; reducing services provided shifting costs onto beneficiaries and cutting payments to providers. Health care gets cheaper on the state’s books, but it doesn’t get better or smarter.

Even if the US Supreme Court were to invalidate the Affordable Care Act, the attacks on Medicaid (including the Children’s Health Insurance Program) and Medicare would continue. Medicaid especially comes with lots of federal strings which offends anti-federal state legislators. The programs represent a large chunk of federal spending—21 % of the 2011 federal budget which conservatives would like to reduce significantly or eliminate.

Although nothing in the Compact compels South Carolina to take over Medicare, nothing would stop it from doing so. The Compact only excludes health care provided by the Department of Defense and United States Department of Veteran Affairs to Native Americans.

The lead sponsor of S. 836 had not understood that this Compact includes Medicare—a highly popular program. In the face of questioning from Sen. Brad Hutto on the point, Sen. Mike Rose said he did not believe it did. Clearly it does. When Hutto attempted to amend the bill on 3^rd Reading to exclude Medicare, the Senate stopped him from offering that amendment. Senator Rose, at that point, moved to put off the debate until he had researched the question—a motion which barely passed. The bill will be up next week.