John Locke Update / Research Brief

The Case Against Medicaid Expansion

posted on in Health Care, Health Care & Human Services
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Expanding Medicaid is a temporary, albeit insufficient, fix for the problems of high costs in the health care system. As a state, we should reject a program that has long been plagued with fraud, waste, and abuse. Instead, we should seek to address the structural problems that make health care so expensive. Expanding Medicaid will not only fail to address the costs of high medical care, it further entrenches a system that contributes to inflated health care costs. There are solutions that may reduce the costs of care, and North Carolina lawmakers should choose to pursue them, rather than expand a flawed program that would only help a small, specific population.

Overview

Medicaid is jointly funded by the federal and state governments. However, states are in charge of managing the program. Medicaid covers a certain share of a state’s low-income population by extending eligibility to enroll those whose income is below a certain percentage of the federal poverty line. A centerpiece of the Affordable Care Act (ACA), also known as Obamacare, was that in exchange for expanding a state’s Medicaid program to cover all residents of the state up to a 138 percent of the federal poverty line, the federal government would cover 90 percent of those costs.

North Carolina is one of 14 states that have not adopted Medicaid expansion under the ACA.  States that have expanded Medicaid have encountered sizable budgetary problems. California recently found out they may have spent $4 billion on people who did not qualify for Medicaid. Louisiana ran into the same problem, amounting to roughly $80 million in unnecessary payments. Further, even the U.S. Department of Health and Human Services concluded that Medicaid expansion enrollees were substantially more expensive than expected.

Perhaps the ACA’s most lasting impact will be the degree to which the law centralized health care decision-making power in Congress. Such centralization leaves open the possibility that a court ruling, a new Congress, or even an executive order could change the system significantly. That fact alone should invite caution from state lawmakers, who should recognize that the state could be on the hook for the promised 90 percent federal contribution at any time. Adding to the uncertainty is the fact that the ACA was recently deemed unconstitutional and an appeal is pending.

Unpredictable Costs

Consider the perverse incentives that programs like Medicaid and Medicare create for the medical community. The original goal of Medicaid was to provide temporary coverage for people who were in need. The financing method of shared state and federal costs is one reason why medical costs are inflated and rising.

Research in the recently published book, Overcharged by Charles Silver and David Hyman, highlights the devastating problems that arise when the government pays for health care. Examples abound of taxpayer dollars going to reimburse medical providers who are performing procedures that will bring no proven medical benefit to a patient.  That is because these programs operate on a “pay first, ask questions after” mentality of reimbursing doctors for providing care. There are no incentives for Medicaid providers to cut costs when they know that they will be reimbursed on an open-ended basis. Even in a managed care system like one North Carolina is moving to, the massive flow of dollars from the state budget to medical providers offer little room for oversight or accountability.  Medicaid also reimburses substantially less than private insurers. To make up for the difference, costs are usually passed on to others.

Expanding Medicaid would amount to growing the size of a federal program that has cost other states huge sums of taxpayer dollars, while simultaneously growing the number of services that the government covers that don’t contribute to healthy outcomes. This doesn’t seem like a productive way to increase the overall health of North Carolinians, which should be our primary goal.

Solutions

North Carolina should scale back on costly insurance mandates, so patients can choose the type of health insurance coverage that meets their needs. Lawmakers should repeal the outdated and expensive “Certificate of Need” laws so that incumbent providers aren’t insulated from competition which leads to higher costs. Further, the state should look at ways to expand more choices of health insurance such as association health plans or short term, limited duration insurance which provide more affordable coverage options for patients. To address the shortage of affordable doctors, lawmakers could open up the scope of practice for affordable practitioners and reduce the barriers to out-of-state doctors to come into the state to practice.

Opposition to Medicaid Expansion does not mean that one doesn’t care about those who are in need. It does not mean that one is neglecting the fact that there are North Carolina residents that struggle to find affordable health care. It’s a belief that instead of trying to put a band-aid on the laceration that is high health care costs, our public policy reform should instead address the structural, systemic problems. To take this approach would aim to decrease the cost of health care for everyone, which is a worthwhile goal.

Note: An earlier version of this article included a reference to Virginia expanding Medicaid and receiving an unexpected bill of close to half a billion dollars. We incorrectly attributed the higher-than-projected cost to the expansion of Medicaid in the state. The inflated projections were the result of unreasonably optimistic predictions of shifting very expensive Medicaid patients into a new plan within Virginia’s program. We apologize for the error and have corrected it in the current version.

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… ...

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