John Locke Update / Research Brief

Evaluating N.C.’s Medicaid Expansion Proposals

posted on in Health Care, Health Care & Human Services
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During the 2019 legislative session, lawmakers have introduced three bills that would expand the state’s Medicaid program. Senate Bill 3 and House Bill 5, Democratic proposals with the support of Gov. Cooper, are identical bills that would expand Medicaid using the method authorized by the Affordable Care Act. House Bill 588 and Senate Bill 452 (Gov. Cooper’s budget) provides a comparable Medicaid expansion. House Bill 655 is a Republican-sponsored version, which is similar in many aspects to conventional Medicaid expansion.  However, it also includes a work requirement and monthly premium payments for new enrollees who meet specific criteria.

The proposals share almost all of the problematic components which would expand the state’s health plan for the neediest in our state, as you can see from the chart below. Medicaid is a public insurance program for the elderly, the disabled, children, and mothers which lawmakers should leave intact for the intended populations rather than add 500,000 new enrollees, most of whom are able-bodied, childless adults.

Table 1. N.C. Medicaid Proposals

 Democratic Medicaid Expansion Proposal
(HB 5/SB 3)
Governor’s Budget
(HB 588/SB 452)
GOP N.C. Healthcare for Working Families (HB 655)
Amends the Medicaid State PlanYesYesYes
Administered by N.C. Department of Health and Human ServicesYesYesYes
Federal government pays 90 percentYesYesYes
Adds 500,000+ new enrolleesYesYesYes
Eligibility up to 133 percent of the federal poverty levelYesYesYes
Provider taxes pay portion of the 10 percent state share YesYesYes
Work requirement NoNoYes
Premium for new enrolleesNoNoYes

Risks of Accepting the 90/10 Medical Assistance Rate

Medicaid is an open-ended entitlement program, meaning that if an individual qualifies and enrolls, the state must make payments on their behalf for health services. Expanding the program to populations beyond the original scope of the program would increase the state’s financial liability if funding or enrollment changed drastically. Each of the Medicaid expansion proposals noted in the chart directs the Department of Health and Human Resources to seek a Federal Medical Assistance Percentage (FMAP) of 90 percent. If North Carolina were to expand Medicaid, not only would the state be responsible for paying for the remaining 10 percent, lawmakers would assume the risk of making up the budget shortfall that would occur if costs were higher than projected.

Furthermore, if the federal government ever decreased the federal assistance rate, North Carolina would be responsible for making up the difference through existing or new state funds. In recognizing the unsustainable trajectory of the federal budget deficit, which is projected to be $897 billion this year alone, the Congressional Budget Office (CBO) recommended that Congress ease the burden of federal outlays by reducing the federal assistance rate for new Medicaid enrollees under the Affordable Care Act. The CBO notes that if Congress were to move forward with this recommendation, federal deficits would be reduced. Put another way, increasing Medicaid spending at the federal level, which the proposals considered in this piece would do, would increase deficit spending.

Expansion proponents claim that by using provider taxes to fund the state share of Medicaid expansion, there would be no cost to the taxpayers. However, using provider taxes to shield the state budget from any new payments in the short-term, while having the federal government absorb the majority of the costs due to the enhanced matching rate, is not free money as deficits continue to rise with newly appropriated spending. Additionally, as my colleague Joe Coletti and I have discussed in a recent op-ed, provider taxes are a scheme that states and providers use to pay for the state share.  We wrote,

Strangely, providers have been eager to support the tax and thus incorporate new costs into the state budget. The reason is simple: It would be a windfall for them. As the Council of State Governments explained: “Most, but not all, providers will receive more in increased Medicaid payments than they paid in taxes, depending upon the amount of Medicaid services provided.”

Compared to the 66 percent federal match for traditional Medicaid, the more generous 90 percent match for expansion would net providers many times more in Medicaid payments than they pay in taxes.

States use this practice to draw down more federal funding than they would in lieu of the tax. The CBO recommended that Congress limit provider assessments to reduce unsustainable federal spending. Lawmakers should be wary of this financing scheme, as reports from Arizona and Colorado found that hospital prices continued to rise following expansion.

Current Enrollment and Improper Payments

Medicaid in North Carolina already covers over 2 million individuals, roughly one-fifth of the state’s entire population and combined state and federal spending is $14.3 billion annually. Adding 500,000 people would likely increase the risks of cost overruns, similar to those that occurred back in 2013 where State Auditor Beth Wood found program overruns that amounted to $275 million, which had to be made up with midyear transfers from other agencies and new state appropriations. Moreover, as recent as last year Wood found that the Medicaid program overpaid managed care providers hundreds of millions of dollars. Couple this with the fact that nationally the Medicaid program made $36.2 billion in improper payments in Fiscal Year 2018, expansion seems imprudent.

Democratic proposals for Medicaid expansion, according to Governor Cooper’s budget would cost $6.3 billion just in the first two years. According to the bill sponsors, Republican proposals would cost $4.7 billion, slightly less due to the premium contributions from enrollees. Regardless, both proposals would increase costs and enrollment in a plan with a record of wasting taxpayer dollars. Throwing more taxpayers’ money into a fiscally problematic program, with costs projected to rise an average 6 percent per year between 2020 and 2027, is not a sensible plan.

Stay the Course on Market-Based Reforms

Health care reform in North Carolina should seek to address policies that limit access and cause the price of health care (and therefore insurance premiums and out-of-pocket expenses) to be unaffordable for individuals who want to purchase health coverage. In addition, among the projected 500,000 individuals who would qualify for the expansion of Medicaid, almost 297,000 already qualify for plans that would cost them nothing after subsidies.

Instead of expanding a program that should be reserved for the state’s most at-risk populations, lawmakers should prioritize market-based solutions that will bring down the cost of care for all North Carolinians. Several have been introduced this legislative session to enhance affordability and access to health care for those who cannot afford insurance. Lawmakers should move forward with bills that would allow enhanced access to association health plans which would give employers, some of whom cannot afford to offer health insurance to employees, a less expensive option to cover employees. Expanding the freedom of Advanced Practice Registered Nurses would increase access for patients, many of whom live in one of the 186 regions that are designated as a health professionals shortage area (HPSA) for primary care physicians. Repealing the state’s outdated Certificate of Need laws would increase access by creating more opportunities for low-cost providers to offer services with more affordable prices compared to existing facilities.

We know that the current Medicaid program wastes millions of taxpayer dollars at the expense of the state’s most vulnerable populations. We know that accepting the federal assistance increases the state’s liability for shortfalls in funding, which will have to be made up by diverting funding from existing programs, imposing new taxes, or decreasing benefits for the entire Medicaid population. Lawmakers should recognize these risks and limit the scope of Medicaid coverage to our neediest citizens while moving forward with health care reform that will expand access and decrease costs by fostering a more functional health care market.

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. After two years in the research division, he moved over to the government affairs team. Jordan now works with state decision-makers in the public and… ...

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