Mississippi Center for Public Policy

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MCPP Reports

8 Reasons to Say No to Medicaid Expansion

March 06, 2013

As part of the president's health care plan ("ObamaCare") states are being encouraged to expand Medicaid to cover able-bodied adults who earn up to 138 percent of the federal poverty level (FPL). Medicaid already covers low-income mothers and children, as well as disabled adults and low-income seniors. Expanding Medicaid will cover adults with no children who are working or could be working -- at least some of whom already have private insurance coverage. In addition to being unnecessary, the expansion will result in lower quality care for Medicaid patients, higher taxes and debt, and job losses for the country as a whole.

1. There is little evidence expanding Medicaid will improve health. Medicaid expansionists often argue we can't put a price on health, assuming Medicaid expansion will automatically improve health outcomes. Like many government programs, however, Medicaid fails to accomplish its stated goals. Numerous studies have shown that Medicaid patients have worse health outcomes than patients with private insurance - and, in some cases, patients with no insurance at all. The most rigorous study on this issue is the Oregon Health Insurance Experiment - a randomized, controlled study that compares health outcomes for individuals who enrolled in Medicaid against other eligible persons who did not. Here is what researchers have found so far:

No pent up demand. While consumption of services rose overall, there was no bump in usage during the first six months of enrollment. In other words, no pent up demand. (As an aside, preliminary estimates suggest many new enrollees in the Medicaid expansion will be healthy adults, such as college students.

No saved lives. The Oregon study found that expanding Medicaid did not reduce mortality rates. While subjective self-reported health outcomes did improve, the majority of these were reported before patients ever saw a doctor -- apparently owing to a feeling of overall wellbeing at the thought of having subsidized health insurance.

No impact on objective health outcomes. The Oregon study also found "no significant improvements in measured physical health outcomes." This is all the more interesting because utilization of health care services increased (along with costs, by $1,172 per Medicaid patient). The increase in utilization (and costs) makes sense because many of these health care services were now provided at no or little cost to Medicaid patients. Medicaid participants also reported lower rates of depression and "reduced financial strain."

Crowd out of private insurance. "Crowd out" is what occurs when people switch from private insurance to subsidized, government insurance. Thirteen percent of new Medicaid enrollees in Oregon already had private insurance. This was with eligibility set at 100 percent of the federal poverty level (FPL). We can expect much higher levels of crowd out if Medicaid expands to all adults up to 138 percent of FPL. This could result in job losses for private insurers.

2. Medicaid is broken -- why expand it? The health outcomes of Medicaid patients are so bad that some studies have found having no insurance is better than being on Medicaid. In particular, Medicaid patients have trouble getting access to specialty care. Likewise, one-third of doctors nationwide won't take Medicaid patients because of low reimbursement rates. Expanding a failing program to include able-bodied adults will only hurt the most vulnerable of patients who are already having trouble accessing care.

3. Medicaid is not a jobs program. Advocates of Medicaid expansion claim that pouring billions of dollars into Medicaid will create jobs. But government does not exist to create jobs and cannot create wealth or productivity. The trade off for new Medicaid jobs is higher taxes and debt -- downsides that will destroy even more jobs in the private sector. At best, Medicaid is a jobs transfer program -- transferring jobs from one sector of the economy to another and doing so in a way that lowers productivity and hurts the economy overall.

Similarly, hospitals do not exist to create jobs, and more hospital jobs will not automatically translate into better patient care. Observes a recent article in the New England Journal of Medicine:

Salaries for health care jobs are not manufactured out of thin air -- they are produced by someone paying higher taxes, a patient paying more for health care, or an employee taking home lower wages because higher health insurance premiums are deducted from his or her paycheck. Additional health care jobs leave Americans with less money to devote to groceries, college tuition, and mortgage payments, and the U.S. government with less money to perform all other governmental functions -- including paying teachers, scientists, and social workers. ... If we were confident that resources were flowing into health care solely because they were driving innovation, raising quality, and improving health and longevity, that would indeed be cause for celebration. There is, however, mounting evidence that our health care system could deliver better care without spending more and that there are tremendous opportunities for improvements in productivity.

4. Medicaid expansion is mortgaging our children's future. U.S. debt now exceeds the country's total economic activity -- what economists call "gross domestic product." Such high debt levels have a very strong and long-term negative impact on economic growth. Any jobs created by expanding Medicaid in Mississippi will come at the cost of our country's long-term economic growth. As Washington slowly responds to the ongoing debt crisis, look for federal policymakers to cut the subsidies Medicaid expansionists are counting on. Expanding Medicaid will cost $800 billion nationwide over the next 10 years. Our children and grandchildren will be paying off this debt.

5. Medicaid is a budget buster. Expanding Medicaid is not "free" and will not entirely be paid for with federal funds. Medicaid currently consumes about $800 million of the state budget. If Mississippi expands Medicaid, total annual costs would reach nearly $2 billion a year or almost $13 billion between 2014 and 2020. Even without expansion, Medicaid costs to the state are expected to increase by hundreds of millions of dollars over the next several years. This is money that will have to be cut from education and other budget items, or generated through a tax increase.

6. A subsidy for hospitals. Hospital associations -- not patients or doctors -- are clamoring most for the Medicaid expansion. Hospitals are seeking to expand Medicaid as a way to make up for funding cuts to the Disproportionate Share Hospital (DSH) program. The cuts were agreed to in exchange for other concessions, such as Medicaid expansion and an effective ban on physician-owned hospitals, inserted into the president's health care program. By not expanding Medicaid, state lawmakers will encourage hospital groups to question their initial support for ObamaCare. Moreover, hospital profits are already at a 30-year high, with hospital revenue hitting $53 billion in 2010. Health economist Martin Gaynor explains why: "The hospital sector has seen over 1,000 merger and acquisition deals from 1994 to the present. The resulting lack of competition among hospitals and other providers allows those providers to monopolize the market and charge higher prices."

7. Medicaid payments to doctors will likely decline. Mississippi has some of the highest Medicaid reimbursement rates in the country. As Medicaid costs skyrocket, there will be tremendous pressure to reduce these reimbursements. This trend can be observed in states that already have expansive Medicaid programs. In California and New York, for instance, Medicaid provider rates are about one-third of private insurance payments. As provider payments decline, physicians will respond by seeing fewer and fewer Medicaid patients. Poorer patients who can't afford other options will suffer most.

8. Uncompensated care costs will likely increase too. If the experience of other states is any indication, hospitals can expect uncompensated care costs to increase. As Maine expanded Medicaid, for instance, charity care costs increased from $41 million to $215 million. Likewise, Arizona's Medicaid expansion resulted in a 9 percent increase in uncompensated care. Tennessee's experience with TennCare led to similar results. The simple fact is that Medicaid patients account for far more in uncompensated and under-compensated care costs than do the poor and near poor uninsured. As hospitals see more and more Medicaid patients, expect these costs to increase.

Who does Medicaid already cover?

The federal minimum for coverage is capped at 133 percent of FPL for pregnant women, infants, and children up to age 5; and 100 percent of FPL for children aged 6 to 19. Medicaid also covers individuals who receive Supplemental Security Income (SSI) due to a disability. Low-income recipients of Medicare are also covered.

Mississippi currently exceeds federal minimums, offering coverage at 185 percent for pregnant women and infants. In addition, the Children's Health Program (CHIP) offers coverage up to 200 percent of FPL ($47,100 for a family of four) for infants and children up to age 19. Parents of Medicaid eligible children are also eligible under certain circumstances.

More than one-quarter of the state's population is currently enrolled in Medicaid. Expanding coverage will increase this number to one-third.

Who would be eligible under the expansion?

Virtually all able-bodied men and women earning up to 138 percent of FPL.

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