So when passing Obamacare, Obama (really the Democratic Party as a whole, but I am using Obama as short-hand for the Dems) had a bit of a dilemma. A large part of the health insurance coverage expansion for the poorest Americans would have to come through Medicaid, a program jointly funded by the feds and the states, but largely administered by the states (with federal regulations to prevent the states from dropping their poorest citizens, etc.). Because 30 of the 50 governors are Republican, who generally are not fond of government funded health care for the young poor (they’re quite fond of it for the elderly, who are much more likely to vote than the young poor), those 30 governors could just turn down the Medicaid funds that were earmarked for expanding health insurance coverage and thus thwart much of the purpose behind Obamacare. The Supreme Court said that Obama couldn’t threaten those governors with cutting off all Medicaid funding to those states, and so Obama had to find a way to lure in the GOP governors into accepting the Medicaid expansion with incentives.
Obama did this by essentially offering to have the feds pay nearly all of the Medicaid expansion costs for the first three years. Free money! Usually, the feds and the states split medicaid costs roughly 50-50, but not here. Of course, after 3 years, the states will pay a bit more of the Medicaid expansion, but still not nearly as much as they do for the current Medicaid funding. Obama predicted, rightly, that this would be seen as a huge bonanza by the medical industry in many otherwise conservative states, and so even conservative Republican governors would cooperate with him in implementing Obamacare. Even stalwart conservatives like Chris Christie and Rick Scott have agreed to accept these Medicaid funds.
Of course, no money is really free-when the money comes from the feds, what that means is the feds tax state citizens, and then return the money to the states themselves. If all 50 states were willing to hold out and refuse the Medicaid funds, then it would be a good deal at least for the richer states (the poorer states have more citizens eligible for Medicaid and less ability to fund those citizens needs). But the states aren’t willing to negotiate together, and instead are each cutting deals individually with the federal government-a classic collective action problem. Obama’s strategy has worked.