January 2, 2016

Medicaid Needs Reform, Not Expansion

Brian Blase

Former Senior Research Fellow
Summary

Instead of expanding Medicaid based on the false promise of free federal dollars, an uncertain proposition at best, Virginia should reform its current program so it better meets the needs of current enrollees and state taxpayers.

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With the dawning of a new legislative year, Virginia policymakers will inevitably face another round of pressure to expand Medicaid, the joint federal-state health care program.

The seemingly ample federal funds offered for expansion by the Affordable Care Act (a.k.a. “the ACA or “Obamacare”) is understandably enticing to state policymakers and to the special interest groups that stand to profit.

Yet, two years into the implementation of the ACA, there are more reasons than ever for Virginians to turn down the Medicaid expansion.

First, a recent study by a team of renowned economists from MIT, Harvard, and Dartmouth shows that Medicaid enrollees place a low value on the program.

The economists found “that Medicaid’s value to recipients is lower than the government’s costs of the program, and usually substantially below.”

They estimate that recipients only benefit by 20 to 40 cents for each dollar of Medicaid spending, while large institutions, like hospitals, nursing homes, and insurance companies, receive the lion’s share of the benefit.

Second, a large body of research shows that Medicaid enrollees tend to suffer worse health care outcomes than similar patients without Medicaid. Largely because of relatively low payment rates to providers, Medicaid enrollees have less access to a regular source of health care and tend to receive worse care, such as being assigned to less-skilled surgeons.

Third, Medicaid recipients receive a disproportionate amount of non-emergency care in emergency rooms. Recent data suggests that the Medicaid expansion has made this problem worse, not better.

Fourth, Medicaid expansions tend to cause people to replace their (often superior) and privately financed coverage with Medicaid.

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Fifth, Virginia’s Medicaid spending is already rapidly increasing, threatening other state priorities. Over the past 25 years, Virginia’s Medicaid spending, adjusted for population growth and inflation, more than tripled. Between 1989 and 2014, Medicaid more than doubled as a percentage of total state spending, while the share of spending going to elementary and secondary education, higher education, and transportation has all dropped.

Sixth, states adopting the ACA Medicaid expansion have experienced much larger enrollment and spending increases than expected. More than twice as many people enrolled in Kentucky as expected, more than doubling the expansion’s cost to the state. Twice as many as expected also enrolled in Washington, and nearly three times as many as expected enrolled in California. In Michigan, costs are 50 percent higher than anticipated, and Ohio’s costs are more than twice what was anticipated.

Seventh, expanding Medicaid means many lower-income people in Virginia will lose insurance through the ACA exchanges.

Although exchange plans are generally unattractive to people who have to pay the plan’s full cost, many Virginians in households earning between 100 and 138 percent of the federal poverty level (between $11,770 and $16,240 for a single person) are enrolled in exchange plans because large subsidies reduce their premiums and deductibles. These people will lose eligibility for subsidies if the state expands Medicaid.

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Gov. Terry McAuliffe has recently discussed a new plan that will expand Medicaid by shifting the cost to federal taxpayers through higher federal deficits. All states should consider the federal government’s deteriorating budget situation and that it may not keep its commitment of greater Medicaid spending.

In 1990, Washington spent $41 billion ($75 billion in 2015 dollars) on Medicaid, equal to about 3 percent of all federal spending.

In 2015, Washington will spend about $320 billion, or nearly 9 percent of all federal spending. Both President Obama and the bipartisan deficit commission recommended several ways to trim federal Medicaid spending, including eliminating a state’s ability to use the method the governor discussed.

Instead of expanding Medicaid based on the false promise of free federal dollars, an uncertain proposition at best, Virginia should reform its current program so it better meets the needs of current enrollees and state taxpayers.