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Research & Commentary: North Carolina Should Not Expand Medicaid

May 8, 2017

In this Research & Commentary, Matthew Glans examines a proposed Medicaid expansion plan in North Carolina and argues against expanding the flawed program.

Medicaid expansion has placed a severe financial strain on the budgets of the states that chose to expand under the provisions instituted by the Affordable Care Act. A new proposal, known as Carolina Cares, offered in North Carolina attempts to expand Medicaid while shifting funding away from the state. Carolina Cares is a new insurance product for residents who are not eligible for Medicaid and have been left out of the Affordable Care Act. If approved, it would be managed by the North Carolina Division of Medical Assistance. The new program seeks to assist people earning less than 133 percent of the federal poverty level and could provide coverage for up to 350,000 uninsured North Carolinians.

Under Carolina Cares, participants would be required to pay an annual premium, billed monthly, representing 2 percent of their household income. They would also be responsible for covering the costs of co-pays, which would be relatively inexpensive. North Carolina hospitals would also be charged an assessment to help pay costs. The annual premium was designed using the Healthy Indiana Medicaid expansion plan.

The North Carolina proposal would also require recipients to be employed or pursuing a job to qualify. However, this requirement is weakened by several exemptions. Among those who would be exempt from the work requirements are individuals caring for a dependent minor, adult disabled child, or disabled parent; those enrolled in treatment programs for substance abuse; and those determined to be medically frail. If a participant fails to pay his or her required premiums, he or she would be allowed to re-enroll once the past-due bills are paid.

Amongst the most significant problems with Medicaid expansion is a lack of clear funding in the future. The federal government has promised to cover 100 percent of the costs of newly eligible enrollees until 2017, but the matching rate declines over time, so states will eventually have to find other ways to pay for the newly eligible population. Medicaid costs have already begun to place a strain on state budgets. In a report from the Department of Health and Human Services (HHS), an examination of Medicaid’s finances found the average cost of ACA’s Medicaid expansion enrollees was nearly 50 percent higher in fiscal year 2015 than the levels HHS had projected the previous year.

Carolina Cares requires the state to ask the federal government for the maximum federal financial participation possible and attempts to limit the state’s exposure to the new costs by not allowing new state funds to be used to cover the usual state share of the costs associated with serving the new beneficiaries. The program will end if the participants’ contributions or the health care assessments on hospitals are not able to cover the costs of the program or if federal funding fails.

In an op-ed for the Wilmington Star News (NC), Katherine Restrepo, director of health care policy for the Raleigh-based John Locke Foundation, argues the funding for Carolina Cares is not likely to cover the long-term costs of expansion. “Instead, the creative tax scheme imposed on hospitals will certainly be costly for federal taxpayers and future generations. This scheme would help bankrupt the nation’s Medicaid program. Lawmakers also won’t advertise that states that have expanded Medicaid in the past are currently dealing with enrollments that have far exceeded original projections, resulting in hundreds of millions of dollars in budget shortfalls.”

A study released by Federalism in Action warns legislators against becoming too reliant on Medicaid to meet the health care needs of the state’s population, as federal dollars are not free money. Specifically, the study found expanding Medicaid in North Carolina would decrease average individual income and crowd out the private sector.

North Carolina legislators should continue to resist Medicaid expansion and instead reform their fiscally unsustainable program in ways that offer better care to enrollees and lower costs for taxpayers. North Carolina lawmakers should focus instead on reforming the current system and applying for waivers before choosing to expand it.

The following documents examine Medicaid expansion, the effects of government spending on the private sector, and the Carolina Cares plan.
 

Expanding Medicaid Will Hurt North Carolina’s Families, Lower Income, and Reduce Jobs
http://www.federalisminaction.com/study-no-5/#sthash.CmLE8Uns.uOjEIH5F.dpuf  
J. Scott Moody explains for Federalism in Action how Medicaid expansion in North Carolina would reverse the recent post-recession growth in the state’s private sector, directly affecting the pocketbooks of North Carolina families by reducing employment and personal income.

Ten Principles of Health Care Policy
https://www.heartland.org/publications-resources/publications/ten-principles-of-health-care-policy?source=policybot
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.

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 of the Mercatus Center at George Mason University 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.

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.”
 

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. 

If you have any questions about this issue or The Heartland Institute’s website, contact John Nothdurft, The Heartland Institute’s government relations director, at john@heartland.org or 312/377-4000.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR