Lessons On State Expansion of Medicaid

Can expansion of Medicaid be a good thing? That’s the key question being asked in state legislatures. Since the passage of ObamaCare, every state has had to address this critical issue. What lessons can be learned from the experience of the last year?

Thus far only 27 states and the District of Columbia have responded with Medicaid expansion. Most of these are blue states with liberal legislatures. But some red states, like Kentucky and Ohio have also expanded Medicaid. Many others, like Texas and Florida are currently considering proposals in their legislatures.


Medicaid Expansion

Key Concerns

The concerns of responsible state legislators are the cost of Medicaid expansion – and the quality of the healthcare their state residents will receive. Those who do not consider both issues will make poor choices.

If you’re only concerned with the cost you may rationalize that this is not a serious concern because the federal government will pick up 100% of the cost through 2016. The federal subsidies go down thereafter but still contribute a major portion of the added expense.

However, there are two reasons to be cautious even with this large commitment by the federal government. First, the government is over 18 Trillion in debt so far and is likely to be over 20 Trillion in debt before the end of the Obama administration. The long-term commitments of the federal government may not be affordable.

Second, the state will still have to pick up the added cost of newly added Medicaid enrollees who were eligible before the ACA but not enrolled. In many states, like Texas and Florida, the enrollment of those eligible for Medicaid before Obamacare was less than 50 percent. The federal government will not be picking up the added expense for coverage of these individuals. When the cost of these enrollees is added to the long-term cost of newly eligible residents, the state could easily be overwhelmed.

Then there is the quality issue. I’ve addressed this concern in earlier posts (Medicaid Expansion Doesn’t Save Lives), which I recommend you review. But the take-home message is that Medicaid is inferior healthcare insurance – and may be actually worse than having no insurance at all. That’s largely because access to healthcare is so poor since providers (doctors and hospitals) are paid so poorly. This problem will only get worse with Medicaid expansion since there will be an even greater shortage of physicians to handle the needs of the expanded Medicaid population.

Economic Stimulus

Proponents of Medicaid expansion believe it will bring economic benefits to the state. In Florida, a coalition of businesses and hospitals, called A Healthy Florida Works, is pushing Medicaid expansion with this argument. They claim savings of $1.7 Billion for the state over the next five years and a positive economic impact on Florida business and the state’s economy.

Texas is also considering a similar proposal. Proponents of Medicaid expansion there make similar arguments. However, Devon Herrick of The National Center for Policy Analysis, refutes these arguments:

“Proponents of Medicaid expansion often tout the “economic benefits” that additional Medicaid funds might create within states. A study by economist Robert Book found that rather than stimulating the economy, Medicaid expansion is a drain on employment and slows economic growth. If all states expanded Medicaid, his analysis shows Texas would suffer a $46 billion negative economic impact over 10 years. Moreover, Texas employment losses would amount to 54,445 work-years from 2014 to 2017.”


There’s another important issue. For states that expand Medicaid eligibility to all legal residents earning from 100 percent to 138 percent of poverty (ObamaCare’s ceiling), many of these people will have previously held private coverage. An analysis of past Medicaid expansions in the 1990s by ObamaCare advisors David Cutler and Jonathan Gruber found that when Medicaid eligibility was expanded, 50 to 75 percent of the newly enrolled drop private coverage. Therefore, a conservative estimate is that Medicaid rolls might have to rise by 1.4 people in order to reduce the uninsured by 1 person. This raises the cost considerably because the government is now paying for those who previously paid for their own insurance.

Proposed Solutions

In Texas, a compromise solution has been proposed that claims to cover the nearly one million individuals that fall in the coverage gap. This proposal, called “The Texas Way” includes: (1) sliding-scale subsidies for low-income individuals to obtain coverage in the private market; (2) cost-sharing to encourage wellness and penalize inappropriate or unnecessary medical utilization; (3) chronic disease management; and (4) small business subsidies. Supporters compare this plan with the Healthy Indiana Plan, which is touted by conservatives as a successful alternative to traditional Medicaid.

The Healthy Indiana Plan requires members to contribute a few dollars monthly into an account mostly funded by the state. They then use this account to pay for health-care costs. This consumer-driven design requires personal responsibility and empowers members to take greater ownership of their health care. It prepares members to move off government assistance in a way that Medicaid does not.

In my opinion, the success of the Healthy Indiana Plan is largely because it reimburses providers roughly 30 percent more than traditional Medicaid. This greatly improves access to providers, which is the key deficiency of Medicaid. This puts these individuals on a nearly equal footing with patients on private healthcare insurance – and their medical outcomes will likely show similar results.

Florida, Texas, and other states considering Medicaid expansion should closely study the Indiana experience and devise similar programs to cover those individuals that fall into the gap between Medicaid and ObamaCare insurance. If successfully implemented, these new plans to cover low-income Americans could one day eliminate Medicaid completely – and that would be a bonus for both the individuals and the government.


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