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Research & Commentary: Medicaid Expansion Bad for Oklahoma

February 26, 2019

In this Research & Commentary, Matthew Glans examines a Medicaid expansion proposal in Oklahoma that would dramatically increase the costs of the program while doing little to improve health care outcomes.

Oklahoma’s Medicaid program, known as SoonerCare, has grown rapidly in recent decades. According to the Oklahoma Health Care Authority (OHCA), SoonerCare enrollment has more than doubled in the past 20 years, from 437,969 in 1997 to 1,014,983 in 2017. Despite the recent surge, Oklahoma lawmakers are considering a bill that would further expand SoonerCare. If passed, the bill could add around 200,000 Oklahomans to the Medicaid rolls.

Under Senate Bill 605, OHCA would create a new “Oklahoma Plan” for the state’s Affordable Care Act marketplace. Oklahoma residents making up to 138 percent of the federal poverty level could purchase these subsidized plans. To fund these plans, Oklahoma would request Medicaid expansion dollars from the federal government.

Contrary to expansion supporters’ depiction of the new federal funds as “free money,” Medicaid expansion is expensive. It creates new costs for states that the federal government doesn’t cover or will not cover forever, leaving state taxpayers on the hook for future liabilities. Also, the matching funds are unlikely to remain stable in the long term.

There is no clear long-term funding solution for Medicaid. The national government has a $22 trillion debt and will ultimately need to cut spending. States will eventually have to find other ways to pay for bloated Medicaid budgets. Newly elected Republican Gov. Kevin Stitt noted his concern about these costs in his State of the State Address: “While Medicaid expansion currently stops at a 90 percent federal match, we cannot assume that it will remain this high forever.”

The new legislation would require Oklahoma to apply for a federal waiver to use Medicaid expansion dollars to subsidize the new coverage. Under provisions written into the original Medicaid law, state policymakers are able to apply for Section 1115 waivers from the U.S. Department of Health and Human Services (HHS), which, if approved, allow states more flexibility to innovate and make significant changes to their Medicaid programs.

Although the proposed changes use the waiver process to expand coverage, there are many positive reforms Oklahoma could pursue thorough the 1115 process. Some reform proposals states can submit to the Centers for Medicare & Medicaid Services and the HHS secretary through 1115 waivers include: work requirements, payment enforcement mechanisms to encourage enrollees to pay cost sharing, incentives for enrollees to engage in healthy behaviors, time limits on coverage, monthly income verification and eligibility renewals, payment and eligibility changes, and the incorporation of health care innovations such as direct primary care.

Oklahoma Council of Public Affairs President Jonathan Small, an expansion critic, warns that any free-market changes implemented under a waiver may not survive any future changes in the White House. “Just like the federal government did with teaching hospitals, historical Oklahoma FMAP rates, and Insure Oklahoma, it will eventually reduce its responsibility of any expansion and the next liberal president will gut any ‘Oklahoma Plan’ just as the Obama administration gutted Insure Oklahoma and hurled thousands of Oklahomans into the failed Obamacare exchanges.”

Medicaid expansion is supposed to improve health outcomes and reduce costs. However, the results have been less than promised. In 2008, Oregon expanded its Medicaid program by 30,000 people, selected randomly from a waiting list of 90,000. A 2013 study published in The New England Journal of Medicine found although Oregon’s Medicaid expansion did create some improvements, such as overall health care use and financial assistance, the expansion failed to achieve the principal goal of health care reform: improving overall health.

In another study of Medicaid expansion in Arizona, the Goldwater Institute found cost-shifting to private payers increased because of Medicaid expansion. Prior to Medicaid expansion in the Grand Canyon State, cost-shifting to private payers to offset underpayments and losses from Medicaid and the uninsured amounted to 14 percent more than the hospitals’ costs, or around $1.4 billion in 2007. In 2016, three years into expansion, the costs funded by private payers increased to around 27 percent above hospital costs, or approximately $2.1 billion.

Medicaid expansion is poor policy. It increases costs without providing substantial health improvements. Oklahoma lawmakers should reject Medicaid expansion. Instead, they should use Section 1115 waivers to institute free-market reforms that will increase access to high-quality, affordable health care without growing state budgets or the national debt.

The following documents examine Medicaid reform and expansion in greater detail.
 

Charting Oklahoma Medicaid Growth over the Past 20 years
https://www.ocpathink.org/post/charting-oklahoma-medicaid-growth-over-the-past-20-years
In this article, Kaitlyn Finley of the Oklahoma Council of Public Affairs examines how both the cost and number of people enrolled in Oklahoma’s Medicaid program, SoonerCare, have substantially increased since 1997.

Don’t Wait for Congress to Fix Health Care
https://www.heartland.org/publications-resources/publications/dont-wait-for-congress-to-fix-health-care
In this Policy Brief, Heartland Senior Policy Analyst Matthew Glans documents the failure of Medicaid to deliver quality care to the nation’s poor and disabled, even as it drives health care spending to unsustainable heights. Glans argues states can follow the successful examples of Florida and Rhode Island to reform their Medicaid programs or submit even more ambitious requests for waivers to the Department of Health and Human Services – a suggestion the Trump administration has encouraged.

The Growing Medicaid Expansion Bubble
https://www.heartland.org/news-opinion/news/the-growing-medicaid-expansion-bubble?source=policybot
In this edition of the Consumer Power Report, Executive Editor Justin Haskins examines Medicaid expansion and all the problems it has created for states, physicians and patients. “Despite the lack of attention the issue is getting, the growing Medicaid population could lead to state government meltdowns around the country and a national health care crisis for which most Americans are completely unprepared,” wrote Haskins.

Here’s Why States Must Resist the Temptation to Expand Medicaid
http://www.forbes.com/sites/sallypipes/2015/07/27/heres-why-states-must-resist-the-temptation-to-expand-medicaid/ - 420cec6d5b80
Sally Pipes, president of the Pacific Research Institute, argues in this Forbes piece states should resist any push to expand Medicaid. Pipes recommends replacing Medicaid entitlements with block grants. “If governors and state legislatures really want to help low-income folks while keeping their budgets under control, they should insist Washington[, DC] replace the failed, open-ended Medicaid entitlement with block grants pegged to inflation,” wrote Pipes.

Government Report Finds Obamacare Medicaid Enrollees Much More Expensive than Expected
http://www.forbes.com/sites/theapothecary/2016/07/20/government-report-finds-that-obamacare-medicaid-enrollees-much-more-expensive-than-expected/ - 75a85aba2dd0
Brian Blase wrote in Forbes the costs for newly eligible adults were not decreasing as expansion supporters predicted they would. Blase says in a new report, HHS says newly eligible adult Medicaid enrollees cost about 23 percent more than the Medicaid enrollees who were eligible prior to expansion.

The Oregon Experiment—Effects of Medicaid on Clinical Outcomes
https://www.heartland.org/publications-resources/publications/the-oregon-experiment--effects-of-medicaid-on-clinical-outcomes?source=policybot
This article from The New England Journal of Medicine examines Medicaid outcomes in Oregon. Oregon gave researchers the opportunity to study the effects of being enrolled in Medicaid (compared to being uninsured) based on data from a randomized controlled trial, the “gold standard” of scientific research. The results showed no improvement in health for enrollees, but it did reveal better financial protections for patients and increased medical spending.

Research & Commentary: States Pursue Work Requirements for Medicaid
https://www.heartland.org/publications-resources/publications/research--commentary-states-pursue-work-requirements-for-medicaid?source=policybot
Senior Policy Analyst Matthew Glans examines efforts by several states to add work requirements to their Medicaid programs. “Implementing Medicaid work requirements would be a good first step for Medicaid-expansion and non-expansion states toward helping to limit the rising costs of Medicaid,” Glans wrote.

Kentucky Seeks Stricter Medicaid Work Requirements
http://thehill.com/policy/healthcare/medicaid/340721-kentucky-seeks-stricter-medicaid-work-requirements
Nathaniel Weixel of The Hill examines Kentucky’s new efforts to reform its Medicaid program. Kentucky lawmakers have asked the Centers for Medicare and Medicaid Service for permission to impose stricter work requirements for Medicaid beneficiaries. The new waiver request updates a previous request to overhaul the state’s Medicaid program.

Why States Should Not Expand Medicaid
https://www.heartland.org/publications-resources/publications/why-states-should-not-expand-medicaid?source=policybot
Writing for the Galen Institute, Grace-Marie Turner and Avik Roy outline 12 reasons states should not expand Medicaid and should instead demand from Washington, DC greater control over spending to better fit coverage expansion to states’ needs, resources, and budgets.

Effect of Medicaid Coverage on ED Use – Further Evidence from Oregon’s Experiment
http://www.nejm.org/doi/pdf/10.1056/NEJMp1609533
Amy Finkelstein, Sarah Taubman, Heidi Allen, Bill Wright, and Katherine Baicker examine the effect Medicaid coverage has on emergency room use. They found people enrolled in Medicaid significantly increase their emergency room visits for around two years after they first sign up. “For policymakers deliberating about Medicaid expansions, our results, which draw on the strength of a randomized, controlled design, suggest that newly insured people will most likely use more health care across settings – including the [emergency department] and the hospital – for at least 2 years and that expanded coverage is unlikely to drive substantial substitution of office visits for ED use.”

Medicaid Increases Emergency-Department Use: Evidence from Oregon’s Health Insurance Experiment
https://www.heartland.org/publications-resources/publications/medicaid-increases-emergency-department-use-evidence-from-oregons-health-insurance-experiment
Sarah Taubman, Heidi Allen, Bill Wright, Katherine Baicker, and Amy Finkelstein use the Oregon Health Insurance Experiment to study emergency department use among 25,000 lottery participants over a period of about 18 months after the lottery. The authors found, “Medicaid coverage significantly increases overall emergency use by 0.41 visits per person, or 40% relative to an average of 1.02 visits per person in the control group.”

Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems
https://www.heartland.org/publications-resources/publications/evidence-is-mounting-the-affordable-care-act-has-worsened-medicaids-structural-problems
Brian Blase examines the effect of the Affordable Care Act on Medicaid. Blase’s findings reveal Medicaid expansion has worsened many of the structural problems in the program. “The unanticipated expense casts doubt on the value of the ACA Medicaid expansion. The enhanced federal match incentivizes states to boost ACA expansion enrollment and to categorize Medicaid enrollees as ACA expansion enrollees, and also encourages states to set high fees for ser­vices commonly used by expansion enrollees and high payment rates for insurers participating in states’ Medicaid managed care programs,” wrote Blase.

Projecting Hospitals’ Profit Margins Under Several Illustrative Scenarios
https://www.heartland.org/publications-resources/publications/projecting-hospitals-profit-margins-under-several-illustrative-scenarios
In this Congressional Budget Office paper, Tamara Hayford, Lyle Nelson, and Alexia Diorio calculate and project hospitals’ profit margins and the share of hospitals that might lose money in 2025 under several illustrative scenarios. “The hospitals we examined would have to increase the growth of total revenues or reduce the growth of total costs by an additional 0.2 percent to 0.5 percent per year to achieve the same level of average profitability in 2025 as they obtained in 2011; whether that would be easy or difficult is unclear,” the CBO report concluded.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.