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Research & Commentary: Partial Medicaid Expansion Is No Longer an Option

August 6, 2019

In this Research & Commentary, Matthew Glans discusses Medicaid expansion and how states can respond to the recent rejection of Utah's funding increase request for its' partial Medicaid expansion.

In July, the Trump administration rejected a request from Utah to increase the federal funds the state receives to fund its partial Medicaid expansion. Introduced in response to a ballot initiative approved by voters calling for expansion, Utah previously received approval for reduced funding to cover a limited expansion of Medicaid for beneficiaries earning up to 100 percent of the federal poverty level, less than the 138 percent covered in full expansion under the Affordable Care Act. The funding level was lowered to gain approval for the waiver.

In April, Utah received approval for a 70-30 funding match, with the federal government paying 70 percent of the cost of the expanded group and the state paying 30 percent. The latest request asked for the 90-10 match paid under full expansion. If approved, the new program would have integrated a per-capita funding structure that would have held the state responsible for increases in health care costs while allowing the creation of work requirements and enrollment caps on beneficiaries.

This rejection has two main effects. First, it signals to other states the Trump administration is unlikely to approve any partial expansion of Medicaid. Many experts believe the White House is waiting on a major legal decision in the Fifth Circuit Court of Appeals that could declare the Affordable Care Act an unconstitutional law.

Second, due to fallback provisions in the Utah law requesting the new funding, the state might be forced to pursue the full expansion outlined in the 2018 ballot initiative. This would be disastrous for the state’s budget. The Utah Governor’s Office of Management and Budget and the state’s Legislative Fiscal Analyst found voter-approved expansion would create a $47 million deficit in fiscal year 2023 and an $83 million deficit in fiscal year 2025.

Despite the reforms added to the partial expansion proposal, Utah’s expansion plan was flawed. Naomi Lopez Bauman, director of health care policy at the Goldwater Institute, told Health Care News in May 2019, “The partial expansion is anticipated to cover about 90,000 people, which is about an estimated 60,000 fewer than full expansion. If the federal government does not provide an enhanced match, it will actually be a bigger budget hit than full expansion which would be triggered in order to obtain the enhanced match.”

Bauman also cautioned that merely handing out Medicaid cards would not improve health care access, because many providers choose not to accept new Medicaid patients due to low reimbursement rates.

Despite this setback, states should not stop seeking ways to reform their Medicaid programs. Reform is essential to ensuring Medicaid’s long-term survival. Over the past decade, Medicaid rolls have expanded much faster than many states can handle. From 2013 to 2018, the number of Medicaid enrollees increased by nearly 28 percent, to more than 67 million. In 2017, the cost of Medicaid reached $581.9 billion.

As more states expand Medicaid, these costs will continue to rise. According to a recent report from the Centers for Medicare and Medicaid Services, Medicaid expenditures are expected to grow at an average annual rate of 5.7 percent from 2017 to 2027, a rate that is expected to far exceed annual U.S. gross domestic product growth.

According to Modern Healthcare, Congressional Budget Office projections in 2018 found the government is “paying out an average of $6,300 annually for every subsidized enrollee in fiscal 2018. It estimates that number will rise to nearly $12,500 in 2028. In contrast, Medicaid spends $4,230 per non-disabled adult, set to inflate at 5.2% annually to just over $7,000 per person in 2028.” These costs could soon overwhelm federal and state budgets.

As recent developments demonstrate, states cannot count on the federal government to provide funds in the long term; all it takes is a change in leadership to dismantle any funding mechanism, leaving state taxpayers on the hook for Medicaid expansion. Medicaid reform efforts should focus on encouraging able-bodied recipients to become more self-sufficient and less dependent on government aid. Fortunately, the Trump administration is encouraging states to enact such reforms.

To date, several states have been granted waivers by the Trump administration. So far, these innovative reforms have focused primarily on creating work requirements. Other possibilities could include the implementation of payment enforcement mechanisms to encourage cost-sharing, such as co-pays; allowing states to deploy incentives for enrollees to engage in healthy behaviors; placing time limits on coverage; or monthly income verification and eligibility renewals.

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


The Arizona Medicaid Expansion Experience: Beware the Peddlers of Cost-Shifting Claims
https://goldwaterinstitute.org/wp-content/uploads/2018/08/ArizonaMedicaidExperience_FINAL.pdf
This study, written by Naomi Lopez Bauman, Angela Erickson and Christina Sandefur examines the effects of Medicaid expansion on health care costs and whether it has cut down on the high cost-sharing borne by the insured. The study concludes expansion increased the burden on the privately insured. “The Arizona experience is a cautionary tale for lawmakers: A program should be evaluated based on outcomes, not intentions. Arizona’s expansion not only failed to deliver on its promise to alleviate supposed cost burdens on private payers, it exacerbated them.

The Report Every State Legislator Should Read
http://www.nationalreview.com/article/440411/obamacare-medicaid-expansion-hospitals?target=author&tid=954473
In this article published by National Review, Chris Jacobs writes about a new report issued by the Congressional Budget Office that analyzes profit margins for hospitals over the coming decade. It concludes Medicaid expansion will not make a material difference in hospitals’ overall viability.

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
In this Mercatus Center paper, 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.

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.

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.

The Value of Introducing Work Requirements to Medicaid
https://www.americanactionforum.org/research/value-introducing-work-requirements-medicaid/
Ben Gitis and Tara O’Neill Hayes of the American Action Forum examine the value of work requirements and argue more work requirements are needed in other safety-net programs, including in Medicaid.

Don’t Wait for Congress to Fix Health Care
https://www.heartland.org/publications-resources/publications/dont-wait-for-congress-to-fix-health-care
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, an option the Trump administration has encouraged.

Maine Food Stamp Work Requirement Cuts Non-Parent Caseload by 80 Percent
http://www.heritage.org/welfare/report/maine-food-stamp-work-requirement-cuts-non-parent-caseload-80-percent#_ftnref36
Robert Rector, Rachel Sheffield, and Kevin Dayaratna of The Heritage Foundation examine Maine’s food stamp reforms and discuss how they could act as a model for other states. “The Maine food stamp work requirement is sound public policy. Government should aid those in need, but welfare should not be a one-way handout. Able-bodied, nonelderly adults who receive cash, food, or housing assistance from the government should be required to work or prepare for work as a condition of receiving aid. Giving welfare to those who refuse to take steps to help themselves is unfair to taxpayers and fosters a harmful dependence among beneficiaries,” the authors wrote.

Welfare Reform Report Card: A State-by-State Analysis of Anti-Poverty Performance and Welfare Reform Policies
https://www.heartland.org/publications-resources/publications/2015-welfare-reform-report-card?source=policybot
In 2015, The Heartland Institute published an updated version of its Welfare Reform Report Card. This report card compiles extensive data on five “inputs” and five “outputs” of state welfare and anti-poverty programs and assigns a final grade to each state for its welfare policies.

The Work Versus Welfare Tradeoff: 2013
https://www.heartland.org/publications-resources/publications/the-work-versus-welfare-trade-off-2013-1?source=policybot
The Cato Institute estimates the value of the full package of welfare benefits available to a typical recipient in each of the 50 states and the District of Columbia. The study found welfare benefits outpace the income most recipients can expect to earn from an entry-level job, and the income gap between welfare and work may actually have grown worse in recent years.
 

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.

The Heartland Institute can send an expert to your state to testify or brief your caucus, host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact the government relations team at governmentrelations@heartland.org or 312/377-4000.

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