by Jordan Roberts
Government Affairs Associate, John Locke Foundation
Elected officials in North Carolina have debated Medicaid expansion for years. The question at hand is whether to accept a generous matching rate from the federal government to add roughly 500,000 new enrollees to the Medicaid rolls, which already serve over one-fifth of the state’s population — over 2 million elderly, disabled, children, and mothers. There are Democratic and Republican proposals to achieve this goal. The effects of expanding Medicaid, particularly costs imposed directly on taxpayers and dispersed in the private market, are central to the discussion.
State legislative proposals would cost the state between $400 and $600 million over the first two years, 10 percent of the $4 to $6 billion total cost, according to bill sponsors and the Gov. Roy Cooper’s budget. To pay the 10 percent state share of Medicaid expansion, both Republican and Democratic proposals would impose new provider taxes and taxes on the new Medicaid managed care plans. The Republican-sponsored proposal would also raise funds from enrollee premiums.
Sponsors of the proposals claim that expansion would be “free” to the state because provider taxes would pay for the 10 percent state share, but there would likely be additional costs. What effect would Medicaid expansion have on private health care costs in the state? How would emergency room utilization be affected by expansion? How much would the expansion population crowd out private insurance? A recent report from the Wisconsin Institute for Law & Liberty (WILL) examined some of these questions.
One of the primary claims used by Medicaid expansion proponents is that providers will have less uncompensated care and therefore less need to shift costs onto private payers. Medicaid reimburses providers below what it usually costs to care for patients. A larger pool of Medicaid patients may lead to more under-compensated claims. Providers would offset lost revenue by raising private payer rates. This is known as “cost-shifting,” and health care scholars continue to debate its prevalence. Research has found that different levels of association between the payer mix and private payer rates. Some studies have found direct evidence of higher private-payer prices due to an increased amount of below-cost reimbursement rates from public payers. Other reports have examined this phenomenon and found that despite states (Colorado and Arizona) expanding Medicaid to cover more individuals, prices for private patients still increased. These findings lead researchers to conclude that cost-shifting is more myth than fact because, in theory, prices should decrease as previously uncompensated care is compensated.
One of the factors that the WILL report examined was the difference in spending over time in states that expanded Medicaid compared to those that did not expand it. In other words, did private-payer rates decrease after coverage increased and Medicaid covered their claims? The study found that states that expanded their Medicaid programs saw an average increase of $177 per person in private-sector health care costs. The researchers concluded that prices increased for private payers as more individuals were covered by Medicaid and their below-cost claims were paid.
Large hospital systems use cost-shifting explanations to justify the high prices they charge private insurers. Regardless of whether it is direct cost shifting or large concentrated hospital systems using their market power to extract increased payments from private payers, Medicaid expansion is not the answer to the cost-shifting problem. Expanding the Medicaid program in North Carolina may increase private-payer rates and raise costs for those not on public insurance.
Another claim used by Medicaid expansion supporters is that an increase in the number of insured individuals will decrease the utilization of emergency rooms, the most expensive place to receive care. According to this argument, if individuals have health insurance, they will see a doctor more regularly and decrease the number of trips to the emergency room for preventable incidents. However, this claim does not stand up to the data. The WILL study finds that in states that expanded their Medicaid program, emergency room visits increased by about 9 per 1,000 residents. Other studies have replicated these findings and found that Medicaid expansion is associated with an increase in emergency department visits. North Carolina has a significant problem with primary care physician shortages in many rural areas of the state. The combination of this problem and Medicaid expansion will likely lead to an increase in emergency room utilization.
The “crowd out” effect is when individuals drop private insurance to take advantage of new eligibility in public insurance. Employers may also drop private coverage because of the new eligibility for their employees to join the Medicaid program under expansion. A study done by Jonathan Gruber and David Cutler found that for every 10 individuals that enrolled in public insurance, six lose private coverage. A recent study published by Chris Pope of the Manhattan Institute estimated that “57% of the increase in publicly subsidized insurance between 2007 and 2017 was offset by a decline in unsubsidized private insurance.” Kaiser Family Foundation data show that almost 297,000 uninsured individuals are already eligible for a subsidized plan on the health insurance exchanges set up by the Affordable Care Act (Obamacare). Another recently released report by the Foundation for Government Accountability indicates that a substantial number of potential Medicaid expansion enrollees will abandon private insurance. This suggests that individuals who have had private insurance or are currently eligible for private insurance would join Medicaid if North Carolina were to expand it.
There is compelling evidence that the costs of Medicaid outweigh the benefits. Lawmakers should consider the costs identified in the WILL report as well as other studies that show Medicaid expansion is not the solution for reducing high private-payer rates. Policymakers should focus on free-market solutions that would reduce costs associated with health care and health insurance and find ways to create a more sustainable health care market, rather than shifting the costs to the taxpayers who fund government budgets.