Buried deep within President Obama’s $3.77 trillion budget is a tiny little proposal to increase Medicaid spending by $360 million. In a budget as large as this one, $360 million is scarcely worth mentioning. It amounts to less than one-hundredth of one percent of total outlays. But this 0.01 percent is worth mentioning, because it proves the president’s health-care law will not work.

While many uninsured patients pay their medical bills, the Medicaid program offers “disproportionate share hospital” payments to hospitals that treat lots of patients who don’t.

The president’s Patient Protection and Affordable Care Act cuts Medicaid’s DSH payments, beginning with a $360 million cut in 2014. The theory went like this: When the PPACA begins reducing the number of uninsured, hospitals won’t need those subsidies. In his budget, however, President Obama proposes to increase Medicaid DSH payments by $360 million in 2014, effectively rescinding next year’s cut. This deceptively small item has far-reaching significance. With this proposal, President Obama has admitted that:

1. The PPACA is not likely to reduce uncompensated care in 2014.

A central argument in favor of the PPACA was that it would end the “hidden tax” that uninsured individuals impose on the insured.

Supporters claimed that hospitals shift the cost of treating the uninsured to private insurers, which increases premiums for a typical family by more than $1,000 — a wild overestimate, but I digress. They argued that the PPACA’s Medicaid expansion and health-insurance “exchanges” would extend coverage to some 30 million previously uninsured people, thereby eliminating that hidden tax and enabling Congress to reduce DSH payments.

The president’s budget shows that not even he buys that argument now. It states: “To better align DSH payments with expected levels of uncompensated care, the Budget proposes to begin the reductions in 2015, instead of 2014.” That is, the president expects that the Medicaid and exchange subsidies won’t eliminate that $360 million of uncompensated care next year. And it’s not because some states are choosing not to expand Medicaid — he proposes to rescind the cuts even in states that are expanding it.

2. The PPACA won’t reduce the deficit.

Rescinding the DSH cuts demonstrates why the health-care law’s supposed “deficit reduction” is a mirage.

Washington has a bipartisan tradition of overspending in the current year while enacting spending cuts and tax increases that will take effect in later years. Those “out-year” measures make the ten-year budget figures appear more responsible than they would if current-year policies were continued. When the out-year spending cuts and tax hikes are due to take effect, Washington rescinds them, and the cycle begins again. Congress has postponed planned cuts in Medicare physician payments every year for the past decade. This year, Obama rescinded cuts the PPACA would make to private Medicare plans, and both parties are lining up to repeal the law’s medical-device tax and the board it would create to reduce Medicare spending.

The president’s latest DSH proposal is a classic “dessert now, spinach later” ruse. To “pay for” this $360 million increase, he proposed cutting DSH payments by that exact amount in 2015 and 2016. He even proposed an additional $3.6 billion cut — in 2023.

3. Hospitals can stop crying poverty.

Hospitals, which lobbied for the PPACA, have been threatening that unless states implement the Medicaid expansion, the Medicaid DSH cuts will lead to layoffs and closures in their districts.

President Obama has rescued the hospital lobby from that self-inflicted wound. The hospitals can no longer use the Medicaid DSH cuts as their boogeyman, because now everyone knows the president will rescind this year’s cuts, and next year’s cuts, and …

4. States don’t need to expand Medicaid to protect hospitals.

The Washington Post reports that rescission of the DSH cuts “could make it a bit easier for states not to expand the Medicaid program. If they know the additional dollars are coming in, there’s a bit less worry about turning down the Medicaid expansion funds.” At the same time, the president has undercut expansion supporters by admitting that expanding Medicaid will not reduce uncompensated care.

The president’s budget shows that the brave state legislators who have been fighting the Medicaid expansion in states like Ohio and Florida were right all along — and it makes expansion supporters, like Governors Rick Scott (R., Fla.) and John Kasich (R., Ohio), look rather silly.

This relatively small spending item is a big admission that the president’s health-care law simply won’t work, and it should provide encouragement to state officials who are still resisting the massive increase in deficit spending, government bureaucracy, and health-care costs the PPACA embodies.