July 7, 2014

A One-Sided White House Report on Medicaid Expansion

Charles Blahous

J. Fish and Lillian F. Smith Chair
Summary

The White House is certainly within its rights to argue forcefully for the president’s policy position. However, a balanced analysis of the considerations facing states with respect to Medicaid expansion would look very different from this report.

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The new White House report on Medicaid expansion, “Missed Opportunities,” argues that states that decline to expand Medicaid through the Affordable Care Act are sacrificing important benefits. 

The report is essentially an advocacy document rather than a neutral analysis of the conflicting considerations facing state governments. This slant is understandable because White House publications are written largely to advance the President’s policy agenda. However, those who are interested simply in understanding the issues in play should be aware of factors pointing many states to the opposite conclusion.

I take no position on whether states should expand Medicaid. Decision-makers in different states can reasonably reach different conclusions based on the state’s specific population needs, subjective value judgments, and budget situation. And states are making a variety of decisions with respect to expansion. One unfortunate undercurrent in the White House document is the implication that states that decline to expand Medicaid are acting against their citizens’ best interests. State government leaders who oppose Medicaid expansion, and President Obama as he supports it, should all be extended the presumption that they are pursuing what they believe to be the best policy.

The White House document makes several arguments in favor of Medicaid expansion, which can be summarized as follows:

1) Medicaid expansion is good for public health.

2) Medicaid expansion is good for state budgets.

3) Medicaid expansion is good for the economy.

The first of these—the public health case—is the strongest, though it is not unqualified. As my Mercatus colleague Robert Graboyes often states, we need to distinguish our societal goal of improving health outcomes from the somewhat contrived goal of maximizing insurance coverage. The two are not the same. It is not optimal for all health services to be purchased through insurance. This encourages overconsumption of unnecessary services and drives up prices. Indeed, if we did not now purchase the vast majority of routine health services through insurance, the price of a given service would be lower, which is another way of saying that we would receive greater health value for our money. 

Our societal overemphasis on insurance is not something that individual states can correct via their decision on whether to expand Medicaid. The White House is justified in pointing out that their insured population, relative to the uninsured, have greater access to health services, greater financial security, and better health on average. This health argument for expansion is not unambiguous given criticisms of Medicaid care quality, but it is the strongest available argument for the White House’s position.

On the other hand, the second argument, that states might actually save money by expanding Medicaid, is highly questionable. To make this case, the White House cites estimates by scholars at the Urban Institute that “if all states expanded Medicaid, reductions in uncompensated care currently financed by State governments would more than offset any additional Medicaid costs.” The report stresses that there is “no State contribution over the next three years and only a modest one thereafter”—and here comes a key qualifier—“for coverage for newly eligible people.”

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