Medicaid Expansion: Markets, Not Government, Would Deliver Better Results

• Medicaid expansion is a government intervention created to address problems caused by previous interventions
• Government artificially inflating demand while restricting supply has resulted in unaffordable prices and a lack of availability
• Instead, legislators should repeal interventions and empower markets to deliver affordable health care

After more than a decade-long battle, Gov. Roy Cooper signed into law a bill for North Carolina to expand Medicaid as provided for in the Affordable Care Act (i.e., Obamacare). The bill was the result of an agreement between Republican leadership in the state House and Senate and is contingent upon a state budget bill being enacted this summer.

Indeed, Senate President Pro Tempore Phil Berger went so far as to claim expansion will “increase access to healthcare in a thoughtful, conservative way.” Berger added that expansion is a “reasonable, fiscally sound approach to expanding access to healthcare.”

Moving beyond the claim that the largest increase of entitlements in state history is considered “reasonable,” we must further consider the ramifications of defaulting to ever-bigger government instead of markets to address problems like affordable and accessible health insurance and medical care.

Instead of using government to provide “coverage” for more people in the current system, why not address what is causing health care to become so unaffordable in the first place?

Ludwig von Mises warned us nearly a hundred years ago that government intervention begets more intervention.

As he wrote in 1929, “isolated intervention fails to achieve what its sponsors hoped to achieve. From their point of view, intervention is not only useless, but wholly unsuitable because it aggravates the ‘evil’ it meant to alleviate.”

Once the interventionists realize their interventions made things worse, Mises argued, they are “not inclined” to remove the initial intervention, but rather seek to address the new problems with still more interventions. The new interventions create new problems, and the cycle repeats, ad nauseam.

This is what we’ve seen play out for more than 80 years in America’s health care industry.

When discussing rapidly rising prices of a good or service, the culprit inevitably is rising demand, restricted supply, or a combination of both.

On the supply side, we see government interventions like Certificate of Need (CON) laws, scope of practice restrictions, Obamacare provisions that accelerated provider consolidation, medical school caps that restrict the supply of physicians, and prohibitions against out-of-state doctors providing telehealth, among others. Meanwhile, health insurance options are restricted by prohibitions on the availability of insurance from other states and by countless coverage mandates that deny consumers affordable, basic coverage options.

Demand, meanwhile, is inflated in large part because of the third-party payer system, which means that most of patients’ bills are paid for by a third party.

Steadily rising government intervention into the health care industry over the past several decades has created a system in which roughly 90 cents of every health care dollar is paid for by a third party.

After all, why not get the unnecessary tests and treatments when someone else is paying?

As noted in this 2017 study by the Mercatus Center at George Mason University, “In 1960, patients controlled how almost 50 cents of each dollar spent on health care was paid. That number is now down to just over 10 cents, with the rest controlled by third-party payers.”

Government programs like Medicare and Medicaid of course shift the cost from the user, but private insurance similarly shifts costs from fee-for-services to premiums, prompting consumers to view their insurance as a sort of prepaid medical card. It’s important to note that private insurance’s rise and its tie to employment are in no small part due to the government’s 1943 decision to make employer-based health insurance exempt from taxation, incentivizing employers to invest more in insurance benefits than salaries.

One costly result of the third-party payer system is unnecessary and excessive testing and treatment. According to a February 2018 report by ProPublica, “The waste is widespread — estimated at $765 billion a year by the National Academy of Medicine, about a fourth of all the money spent each year on health care.” ProPublica described the waste as “one of the intractable financial boondoggles of the U.S. healthcare system,” in which tons of patients “get lots and lots of tests and procedures that they don’t need.” After all, why not get the unnecessary tests and treatments when someone else is paying?

Obamacare and Medicaid expansion are government interventions created to address problems caused by decades of previous government interventions. What was the result of the “Affordable Care Act”? A 2022 Commonwealth Fund study found that a decade after Obamacare’s passage, employer health plan premiums and deductibles were consuming about 27% more of median household income.

As Mises predicted, Obamacare aggravated “the ‘evil’ it was meant to alleviate.” Next up will be more interventions. As John Locke Foundation Board member John Hood warned, we may be on a “slippery slope to single payer.”

Sadly, North Carolina Republicans bought into more government intervention as a means to address the problems of previous government interventions. A far better path would be to unwind as many such interventions as possible and empower market solutions. To their credit, legislators did include some incremental rollback of a few CON laws, but such market-based reforms pale in comparison to the historic government enlargement Medicaid expansion represents.

Markets deliver. And as I wrote previously, “where markets — not government — dominate, the poor are much better off and racial and economic disparities fall.”

And not only would markets deliver greater access to affordable health care, they are more conducive to a free society. Markets involve people and organizations freely and voluntarily interacting with each other. Conversely, government interventions involve restrictions, mandates, and wealth confiscation under the threat of force.

There’s nothing “conservative” or “reasonable” about choosing the latter.