[S]ome governors see in ObamaCare’s Medicaid expansion an opportunity to move the program in a more market-oriented direction.

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With Republican governors in Pennsylvania and Tennessee recently agreeing to expand their states’ Medicaid programs under ObamaCare, some conservatives are worried that a wave of capitulation is washing over the GOP.

“Is the Republican fight against Medicaid expansion over?” asks a Washington Examiner headline. The question was prompted by separate announcements from Governors Bill Haslem of Tennessee and Tom Corbett of Pennsylvania – both Republicans up for reelection this year – that they are seeking federal approval to expand Medicaid through ObamaCare.

Previously, Haslem and Corbett resisted expanding Medicaid – the federal program that funds up to half of a state’s health insurance coverage for the poor – because of fiscal concerns.

And for good reason.

As written, ObamaCare covers 100 percent of the cost for increasing the pool of eligible beneficiaries through 2017. After that, the portion drops to 90 percent. But 10 percent of a large number could bankrupt a state.

For example, Texas already spends 20 percent of its budget on its pre-ObamaCare Medicaid program. Expanding it would benefit 2 million more Texans, but at a ten-year projected cost of $27 billion. That’s $27 billion that must come from other budget items or new taxes.

Faced with similar scenarios, Haslem and Corbett are joining the ranks of Republican governors who are trying to draw down ObamaCare’s increased funding for Medicaid, while guarding against an open-ended spending commitment at the state level.

Corbett is proposing a “Healthy PA” plan that would convert Medicaid dollars into a subsidy to purchase private health insurance for the state’s poor. Haslem hasn’t committed himself to specifics yet, preferring to unveil his alternative at a later date.

The decisions by Corbett and Haslem to participate in ObamaCare’s Medicaid expansion make Pennsylvania and Tennessee the latest Republican-led states to do so.

But while any deliberate increase in Medicaid spending should be a cause for concern to conservatives, not all expansion decisions should be dismissed out-of-hand.  

Generally speaking, states choosing to expand Medicaid fall into two groups.

The first type expands Medicaid exactly how ObamaCare’s drafters intended. To date, 22 states and the District of Columbia are increasing the eligibility pool for people earning up to 138 percent of the federal poverty line. This group includes Republican governors like John Kasich of Ohio, Jan Brewer of Arizona, Brian Sandoval of Nevada and Susana Martinez of New Mexico, among others. States opting for this route are simply growing a runaway federal entitlement, as well as accepting significant new state financial obligations within a few years.

The other group of governors – a list that includes Mike Pence of Indiana, Terry Branstad of Iowa and now Tom Corbett of Pennsylvania – is trying something different. The plans differ in the details, but essentially each is an attempt to use government funds to purchase private insurance, with some level of cost-sharing with the beneficiary. If that sounds just like an ObamaCare exchange – where the working poor and middle classes can buy health insurance with government subsidies – it is, but with one important distinction. 

The difference is that creating an ObamaCare insurance exchange meant injecting government into a new area of health care policy. By contrast, state governments are already in the Medicaid business.

Simply eliminating the program isn’t a realistic option, even in Texas where a prominent member of the legislature floated the idea. Instead, some governors see in ObamaCare’s Medicaid expansion an opportunity to move the program in a more market-oriented direction.

In some states, that means giving Medicaid recipients more choices by allowing private insurance companies to compete for their business. In others, it means capping the amount the state will pay for a plan, incentivizing beneficiaries to shop for the best value. Another common element among the alternatives is the requirement that people on Medicaid contribute some (usually very small) amount toward the monthly premium to give the beneficiary some skin-in-the-game.

Each governor’s alternative to straight Medicaid expansion deserves scrutiny, but the question to ask should be whether a proposal moves the program toward a more cost-conscious, consumer-driven approach. If it does, then it is a step in the right direction, at least for the particular state it would benefit.

A similar argument has been made to defend Paul Ryan’s Medicare reform idea. There, it was argued that making traditional Medicare compete against private plans is a step in the right direction because the move would cap taxpayer spending per plan and force government providers to show value to consumers. From that perspective, critics of Ryan are mistaken to analogize his Medicare reform with the public option sought by liberals but not included in ObamaCare. Including a government-run option on ObamaCare exchanges would have empowered government. Making Medicare compete with the private sector empowers the market.

The same is true with Medicaid.

Conservatives must remember that when it comes to health care policy, ObamaCare’s insurance exchanges distort the picture by confusing the options facing politicians. Government-run exchanges are a new policy tool that must be accepted or rejected, whereas Medicaid and Medicare are deeply embedded programs that must be reformed rather than ignored or jettisoned.

While the jury is still out on whether any of the Republican governors’ alternatives to Medicaid expansion will work in practice – and already the Obama administration has rejected some of their market-oriented elements – it’s important to remember that reforming the entitlement system will take all of the creativity conservatives can muster.