Policy Position

Medicaid Expansion

in Health Care

Introduction

Medicaid is a program jointly funded by the state and federal government. Its core functions include paying medical providers for services rendered to low-income parents, children, pregnant women, the elderly, the blind, and the disabled.

The federal government currently funds two-thirds of North Carolina’s $14 billion Medicaid program. The Patient Protection and Affordable Care Act (ACA), commonly known as Obamacare, gives states the choice to expand Medicaid eligibility to individuals earning up to 138 percent of the federal poverty level. This figure equates to an individual earning $16,642 per year or a family of four earning $33,948. North Carolina is one of 18 states that have not expanded Medicaid.

If North Carolina had chosen to expand Medicaid, the federal government would have fully funded its cost through 2017. States would then be responsible for financing a portion of total funds, reaching a maximum of 10 percent by 2020.

The experiences of states that have expanded Medicaid should temper the enthusiasm of those who champion expansion. For example, Arizona’s expansion in 2002 originally projected slow enrollment growth, maintainable costs, a reduction in the number of uninsured, and reduced uncompensated care. All four of these projections yielded opposite results. The expanded population (mostly childless adults) ended up costing two to four times more than the cost of covering low-income parents. Similar outcomes occurred in expansion states, including Oregon, Delaware, Maine, Washington, D.C., Utah, and Vermont.

Key Facts

  • Fully funding Medicaid expansion and other health care entitlements will necessitate either higher levels of deficit spending, which adds to the multi-trillion-dollar federal deficit, or substantial increases in taxes, which impedes economic growth.
  • Medicaid expansion would cost North Carolina an estimated $6 billion between 2020 and 2030. To pay for the expansion, the North Carolina General Assembly would need to reduce provider payments, divert resources from other important parts of the budget such as education or transportation, or increase taxes.
  • Expanding Medicaid eligibility puts traditional program enrollees at risk. Low-income parents, children, pregnant women, the elderly, the blind, and the disabled would have to compete for access to health care with an estimated 500,000 people added to Medicaid rolls, 82 percent of whom are able-bodied childless adults.
  • Currently, 25 percent of physicians in North Carolina do not accept new Medicaid patients, because, in part, of below-market reimbursement rates. Physicians and providers who serve Medicaid patients would compensate for the expansion by negotiating higher payment through private carriers, ultimately passing on the cost of expansion to non-Medicaid consumers in the form of higher premiums.
  • With less access to physicians that accept new Medicaid patients, new enrollees will likely turn to hospital emergency rooms for service. A Colorado Hospital Association report found that emergency room usage was higher in expansion states than in non-expansion states.
  • Expanding eligibility levels for government health insurance programs crowds out access to private coverage. Studies indicate that the crowd-out effect contributes to the fact that six out of 10 people on Medicaid once had private coverage.
  • The 2008 Oregon Health Insurance Experiment (OHIE) is known as the “gold standard” of studies that assess Medicaid’s overall effectiveness. Researchers randomly assigned eligible patients to the state’s Medicaid program. Two years later, the authors concluded that Medicaid had no statistically significant effect on major measures of health outcomes between those who had been chosen to participate and those who had not.

Recommendations

  1. Congress should grant North Carolina even more flexibility with its Medicaid reform plans by reconstructing the Medicaid program in its entirety.
  2.  Congress should allow states to have more flexibility managing their long-term care Medicaid caseload.
  3. Congress should offer a universal refundable tax credit to able-bodied, working Medicaid patients and their dependents to offset the cost of private health plans sold on the individual policyholder market. This can reduce government dependence in the long term, instill consumer awareness, and promote patient choice.
  4. Congress should change Medicaid’s financial design. Historically, the federal government pays for two-thirds of North Carolina’s Medicaid bill. The match rate has produced perverse incentives for states to expand optional benefits or program eligibility since the program’s inception in 1965. A federal block grant allocated to states will instead push North Carolina to budget accordingly with a defined amount of resources and take full ownership of any additional state Medicaid spending as policymakers see fit.
  5. Congress should focus more on relaxing regulations to make health care more affordable, and less on how to extend health insurance for all. Funding a Medicaid expansion will not solve our nation’s pervasive health care access problem.

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