More than a decade after the Affordable Care Act, commonly known as Obamacare, became law, most states — red and blue alike — have concluded that the law’s offer of federal money to cover Medicaid expansion is just too good to pass up.

Medicaid is the joint federal-state program that provides health insurance for low-income individuals and children.

Originally designed as a safety-net program, it has ballooned to cover well over a quarter of the United States population. A central part of the Affordable Care Act was a provision allowing states to expand Medicaid coverage to working-age, able-bodied adults, with the federal government covering at least 90% of the cost.

Mission Creep: Medicaid is no longer a program for the poor. It is increasingly a middle class entitlement. ht @Paragon_Inst pic.twitter.com/yPGxeZGCFL

— Dean Clancy (@DeanClancy) September 27, 2022

 

Originally, state decisions about whether to expand fell along the traditional red-blue divide, but as the years have gone by, more GOP-led states have embraced expansion.

Today, only 11 states have refused to expand their Medicaid program. Apparently, even red states found the money irresistible — what’s not to love about spending $1 and receiving $9?

As it turns out, there’s a lot not to love about expanding Medicaid, starting with how it hurts those who most need help.

Americans for Prosperity’s Senior Health Policy Fellow Dean Clancy sums up the problems facing Medicaid:

Medicaid is a broken program, overly bureaucratic with weak cost controls and no accountability for results. It provides notoriously substandard care for patients and yet also manages to waste one of every five dollars it spends. Medicaid should be fixed, not expanded.

Medicaid fails those who need it most

The argument for expanding Medicaid is straightforward: Low-income Americans lack access to health insurance and, as a result, lack access to care. Medicaid solves this problem by providing them essentially free health insurance.

This argument runs aground, however, on the rocky shoals of Medicaid’s realities. Just because someone has a Medicaid health insurance card does not mean they have access to health care.

Everybody knows that health care in the United States is expensive, and so full access to care depends on having health insurance. But Medicaid does not come close to providing the kind of coverage that private insurance does.

Medicaid’s payment rates to health care providers are so low — one figure puts them at a quarter of private insurance rates — that many doctors won’t take on Medicaid patients.

• A 2014 government study found that only half of doctors who claim to take Medicaid patients are actually accepting new ones.
• A 2019 study found that Medicaid patients are 1.6 times less likely to successfully schedule a primary care appointment, and 3.3 times less likely to see a specialist.
• Wait times for Medicaid patients are also substantially higher.

As a result, those with Medicaid are too often left out in the cold, so they turn to the one place they know they can get treatment whenever they want: the emergency room, the most expensive kind of care.

A 2021 study found that “Emergency department wait times increased 10% under Medicaid expansion.”

Medicaid fails those who need it in another way, too.

Medicaid too often fails to improve the health of those who have it

Oregon ran an experiment on its Medicaid program, randomly selecting some people to enroll and tracking their health versus those who could not enroll — the gold-standard in experimental design.

The results were startling.

According to the National Bureau of Economic Research, enrollment in Medicaid “produced no statistically significant effects on physical health.”

More specifically, while enrollment reduced depression, it had “no statistically significant effects on blood pressure, cholesterol, or cardiovascular risk.”

These results show that those with Medicaid are no better off than those with no insurance at all

Oregon is just one state, but Medicaid care elsewhere has proven disastrously bad, too.

A group of patients in California, for example, has sued that state’s Medicaid program for sub-standard care — despite the fact that California’s private Medicaid insurers are raking in billions of dollars in profits.

But Medicaid’s problems extend even further.

Expanding Medicaid has unintended consequences that hurt the most vulnerable

Medicaid expansion promises states health insurance expansion on the cheap, but not without a cost on those who need help the most.

A landmark report from the Mercatus Center examined whether Medicaid expansion altered states’ Medicaid spending. It found that expansion states spent significantly less on vulnerable populations than non-expansion states.

The study’s authors write:

Per capita Medicaid spending growth on children in expansion states was less than one-third what it was in non-expansion states and less than one-quarter of national average per-capita healthcare spending growth.

Children in expansion states received $500 less in state funding over the first six years of expansion than those in non-expansion states. The study also found cuts for the disabled and elderly.

Another study from Harvard found a similar dynamic at work in education. A $1 increase in social-services spending — driven by Medicaid — resulted in $2.44 less being available for higher education.

These results aren’t surprising: Unlike the federal government, states can’t put higher costs on a limitless credit card. Budget management demands that resources spent on one priority must be inevitably pulled from others.

Yet states have more to fear than redirected resources.

Medicaid expansion threatens the fiscal stability of states, both short-term and long-term

Short term, states that expand Medicaid are likely to see substantially higher costs than they expect

At an alarming rate, states that have expanded Medicaid have seen actual enrollment vastly outstrip projections, meaning Medicaid punches a bigger hole in state budgets than lawmakers expected.

Medicaid spending comprises, on average, 27% of state budgets, making it the largest spending category. So even if the federal government picks up 90% of the tab for all the new enrollees, the 10% state portion is still a very large sum of money and can bust state budgets.

• According to one study, enrollment of the newly eligible population is 160% above projections — 16.7 million people instead of 6.5 million.
• Per-person costs are also 64% above estimates.
• And expanding Medicaid has led to more people enrolling in Medicaid who already qualified for the program pre-expansion. This “woodwork effect” leads to about a 10% rise in traditional Medicaid rolls on top of expansion.

Long term, there is little that states can do to cap their costs, which makes Medicaid a massive liability to their fiscal stability

The federal government restricts how states can modify their Medicaid programs. They can’t limit enrollment and haven’t been allowed to remove ineligible individuals for the past three years thanks to a federal provision that Congress wisely voted to sunset beginning in  April.

As a result, if Medicaid becomes fiscally unsustainable, states have essentially no choice but to quit the program or the expansion altogether — a politically unpalatable move at best.

What’s more, there is nothing to prevent Congress from lowering the federal reimbursement rate for the expansion population, which could leave states on the hook for billions more.

These high costs might be worth it if the money were well-spent, but it isn’t.

• Federal data uncovered by Americans for Prosperity Foundation show that more than 1 in 5 dollars spent on Medicaid in 2020 were spent improperly, with $86 billion spent wastefully.
• The expansion seems to be fueling improper payments.
• The improper-payment rate has more than tripled, from under 6% before Medicaid expansion to more than 20% now.

With all these problems, lawmakers would do well to look beyond the dangling federal dollars of Medicaid expansion.

Lawmakers can follow a better path: a Personal Option

Medicaid expansion might seem like the only game in town, but the reality is state lawmakers have a number of different options for expanding access and reducing costs, many of which are part of the Personal Option.

“States don’t have to wait for Washington,” AFP’s Clancy says. “They can do a number of things right now to help promote access and lower costs while shielding individuals from risk.”

• Repeal Certificate of Need laws that make it difficult to open new doctors’ offices and hospitals.
• Increase the supply of doctors and nurses by allowing them to practice across state lines.
• Expand the scope of work for nurses and physician’s assistants so they can do all they are trained to do.
• Allow pharmacists to administer shots and prescribe low-risk medications.
• Loosen telehealth regulations to give patients access to medical experts across the state.
• Enable access to farm bureau (or other nonprofit membership organization) health insurance plans, which can be much cheaper than normal insurance.
• Promote charitable care as an option for uninsured or underinsured people who struggle to afford quality health care.
• Promote direct primary care as a viable option for Medicaid patients, freeing them from the burden of using insurance as a middleman.

The Medicaid HSA Option is a new idea to give tens of millions of low-income Americans better access to health care with more choice, control, and dignity. My latest at @FDRLST cc @AFPhq @HSAsForAll @personal_option#personaloption #HSAOption https://t.co/NS6Qm6A6mM

— Dean Clancy (@DeanClancy) February 10, 2023

 

These reforms would increase the number of options and reduce costs — changes that, while helping everyone, would have an outsized impact on low-income individuals. And a number already have a track record of success.

In Dallas, for example, Carrell Clinic Foundation is demonstrating the effectiveness of the charitable care model, offering high quality care at little to no cost.

But state lawmakers can push further.

One innovative option is to allow Medicaid beneficiaries to enroll in a direct primary care arrangement using Medicaid funding.

Such a reform would ensure Medicaid patients have access to doctors while cutting out insurance and giving beneficiaries more control over their health care long-term, building on the success of direct primary care providers such as Camino Health Center in North Carolina.

This reform might require, however, a federal waiver.

For its part, the federal government could do a variety of things to help reduce costs and improve access, from getting rid of the rules that limit who can have a health savings account to promoting price transparency to streamlining drug approval — all part of the Personal Option.

States must resist the siren song of federal funds if they truly want to help people

At the end of the day, Medicaid is a federal program, and any major reform will require cooperation from Washington.

To help low-income people the most, state lawmakers will need to do more than resist the siren song of federal funds in Medicaid expansion.

They will need to enlist the federal government’s help in pursuing sensible reforms that promote access while reducing costs.

“Instead of putting more people on the Medicaid rolls,” says Clancy, “states need a lot more flexibility from Uncle Sam to eliminate waste and target scarce resources to the truly needy.”

Medicaid was meant to be a safety net for the truly vulnerable. Misguided expansions have turned it into a sprawling, wasteful entitlement that fails to ensure timely access to needed care.

We can do better. Instead of expanding Medicaid, we should reform it to be worthy of the vulnerable families who need it most.