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Research & Commentary: There is No Such Thing as a Conservative Expansion of Medicaid

February 14, 2020

In this Research & Commentary, Matthew Glans discusses Medicaid expansion and how states expanding with faux free-market reforms have failed to improve their Medicaid programs.

Medicaid expansion is an expensive endeavor that many critics believe does not provide better or more affordable health care. Many of the expansion plans states are considering would use federal funds to expand their Medicaid programs to a larger portion of their state, creating new costs the federal government may not always be able to cover and leaving state taxpayers on the hook for the new liabilities.

Some Republican-controlled states have expanded their Medicaid programs via reforms they refer to as “free-market,” even though the policies enhance the power of government and are fiscally irresponsible. Other states, including Kansas and Oklahoma, have considered using funds from the pot of allegedly “free” dollars offered by the federal government to expand Medicaid, even though many states have learned the hard way these funds have detrimental strings attached to them.

In an article published in Forbes, the Foundation for Government Accountability’s Nic Horton, Jonathan Ingram, and Josh Archambault argue expanding Medicaid in any state would harm those in real need. “Details aside, there is one fact expansion supporters cannot escape: every penny spent on expansion is a penny stolen from the state’s most vulnerable citizens.”

Arkansas and Indiana expanded their Medicaid programs under the false promise of offering a “free-market alternative” to “Obamacare,” and several Republican governors are reconsidering their opposition to Medicaid expansion. But the so-called “private option” plans are merely machinations concocted by Medicaid expansion supporters to give conservative legislators political cover for expansion. This is done so politicians on both sides of the aisle can grab what they incorrectly claim is “free money” from the federal government.

Indiana’s Medicaid expansion programs, which was initially implemented through a Section 1115 waiver in February 2015, added several reforms that were presented as free-market, including monthly premiums and penalties for non-payment of premiums as a modest cost sharing model. Despite these efforts, the cost of Medicaid expansion in Indiana continues to rise at an unsustainable rate and the premiums and enforcement rules have proven to be far from adequate.

A new study from the Pew Charitable Trusts has found that the states’ share of Medicaid spending has grown steadily over time and is taking up more and more of state revenue. In many states, Medicaid has become the states’ biggest expense after K-12 education. According to an article by Larry DeBoer, professor of agricultural economics at Purdue University, Indiana’s share of Medicaid costs “was expected to total $2.2 billion in fiscal 2019, then $2.5 billion in 2020 and $2.6 billion in 2021.” DeBoer argues these increasing costs will eat up any new tax revenue the state may generate.

“Rapid growth of Medicaid costs means an added $270 million will be needed in 2020, and $120 million will be needed in 2021. So Medicaid will require about 66 percent of all the new revenue in 2020, and 30 percent in 2021.”

The premiums also failed to achieve their goals. According to the Kaiser Family Foundation, more than half of all of those eligible to pay premiums under Indiana’s waiver during the first two years of implementation failed to do so.

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. States and the federal government share costs for the safety-net program and as the federal share of costs decreases, states must take on more of the cost burden. In the states choosing to expand Medicaid, the federal share has decreased since the passage of the Affordable Care Act and now sits at 90 percent.

Medicaid costs are skyrocketing due to overregulation, rising drug and medical device costs, and increased use of long-term and behavioral health services. In Indiana, Medicaid costs have risen consistently over the past decade. These rising costs will continue to grow over time. According to a recent report from the Centers for Medicare and Medicaid Services, Medicaid expenditures are expected to rise at an average annual rate of 5.7 percent from 2017 to 2027, a rate that far exceeds annual U.S. gross domestic product growth.

Indiana’s Medicaid expansion should serve as a cautionary tale and a lesson for all other states. There is no such thing as a conservative Medicaid expansion, the strings attached make any expansion difficult to support over the long run.

The following documents examine Medicaid expansion in greater detail.
 

Indiana Medicaid Expansion Tied to Budget Challenges
https://www.ocpathink.org/post/indiana-medicaid-expansion-tied-to-budget-challenges
In this article, Ray Carter of the Oklahoma Council Of Public Affairs examines Indiana’s Medicaid expansion efforts and how they are creating severe budget problems for the state.

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 The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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