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The Perils of Foregoing Medicaid Expansion

With the Supreme Court ruling that the federal government could not penalize states for opting out of Medicaid expansion, Florida, South Carolina, Iowa and Louisiana have already declared that they will forego expansion.  Several other states are also mulling the idea, as legislators are tripping over themselves trying to distance themselves from ObamaCare.  To mix two equine metaphors, Florida Governor Rick Scott was one of the loudest in flogging a federal gift horse in the mouth: “Florida will opt out of spending approximately $1.9 billion more taxpayer dollars required to implement a massive entitlement expansion of the Medicaid program.”  This move could deny coverage to 950,000 childless adult Floridians who make less than $14,500 per year (133% of FPL).

Interestingly, a May 2010 Kaiser Family Foundation study found that of the top 10 beneficiaries (states that get the highest percentage of expansion eligible adults), nine went for John McCain in 2008.  In contrast, of the ten states that would benefit the least, eight went for The Socialist himself.

Massachusetts, which already provides Medicaid coverage to working adults with incomes up to 133% of the FPL, boasts the lowest uninsured rate in the nation at 5%.  Congratulations are in order to presumptive nominee Mitt Romney, but why are some his colleagues so reluctant to embrace a program that would 1) greatly benefit their constituents, and 2) be funded significantly by the federal government?

Are Medicaid costs as burdensome as states make them out to be?

Yes and no.

One of the rallying cries against Medicaid expansion is that the program is already draining state budgets, and the addition of more beneficiaries will only be a poison pill in the long run.  The federal government currently pays 57% of Medicaid costs, with state footing the rest of the bill.  With expansion, however, the federal government will pay 100% of costs for all newly eligibles, with their funding tapering down to 90% after 2020.

study by KFF found that states, on average, spend 16% of their state general funds on Medicaid programs, which is less than half of what they spend on K-12 education:

The proportion of state spending on Medicaid has increased in the past 15 years, but not at the breakneck speed that some make it out to be.  The Kaiser report says, “Despite beliefs that Medicaid is claiming a larger share of state budgets, the share of state general fund dollars for Medicaid has remained fairly stable increasing from 14.4% in 1995 to 15.8% in 2010 at the same time general fund spending for education increased from 33.4% to 35.3%.”

The jump in 2011 spending is attributed to the recession and drop in state revenues, as well as the expiration of federal stimulus funds for Medicaid.

So how much more expensive will Medicaid expansion be?

Using estimates by the Congressional Budget Office, the Center on Budget and Policy priorities calculated that if all states went ahead with the expansion, they would spend 2.8% more than what they would have spent on Medicaid from 2014-2022 in the absence of health reform.

Additionally, Medicaid programs across the country already cover some of the most expensive patients (disabled, mentally ill, elderly). While the upfront costs of insuring newly eligibles cannot be ignored, it is a necessary investment that will not only produce a healthier population, but allow governments to spend less on uncompensated care. A report by the Urban Institute predicts that states will save $92 to $129 billion between 2014 and 2019 “because of provisions in the ACA that are designed to reduce the uninsured population and provide federal funding for functions that, in the past, have been financed by states and localities.”

But does Medicaid actually help?

The common perception is that Medicaid provides such low-quality health care that Medicaid coverage is worse for your health than being uninsured.   While common sense would dictate that coverage would make people healthier, it was difficult to counter the former argument because every study lacked a control group – in other words, researchers could not randomly assign people to receive Medicaid or go without.

Oregon’s lottery system, however, changed that.

In early 2008, Oregon opened a waiting list for a limited number of Medicaid spots for low-income adults; the state drew names by lottery from the 90,000 people who signed up, providing a randomized control study for Katherine Baicker, a health economics professor at Harvard University.  Her study, which summarized the results of 50,000 mail surveys and 750 in-person interviews, found that in the first year, the treatment group (with Medicaid coverage) had “substantively and statistically significantly higher health utilization (including primary and preventive care as well as hospitalizations), lower out-of-pocket medical expenditures and medical debt (including fewer bills sent to collection), and better self-reported physical and mental health than the control group [without Medicaid coverage].”

Researchers are still following the Oregon group, but preliminary results do show that Medicaid coverage helps, both medically and financially.

What does this mean for residents of states that opt out?

They have three options: don’t have insurance, don’t live in those states, or don’t be poor.

If a state doesn’t expand their Medicaid program, it would create a donut hole for low-income residents.  The ACA was written under the assumption that individuals with incomes under 133% of FPL would gain coverage through Medicaid, and those with incomes between 133-400% of FPL will be eligible for federal subsidies to buy plans through the health insurance exchanges.  In the absence of Medicaid expansion, some of the poorest residents will be unable to benefit from the ACA.  The following chart by the Washington Post summarizes this depressing scenario:

In other words, if Texas decides to opt out of Medicaid expansion, residents with incomes between 26-100% of FPL ($2,900 – $11,170) will not be eligible for any type of subsidized coverage.

Medicaid expansion may come at a high cost, but the rejection of the program is just as, if not more, costly.  In addition to the spiraling costs of uncompensated care, there will be imminently preventable casualties through increased mortality and morbidity.

May rationality prevail.

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