Debunking the Government’s Pro-Medicaid Report

Louisiana’s Medicaid expansion helped far too few people obtain good, affordable health coverage and actually cost Louisiana desperately needed jobs. But a taxpayer-funded report released by the Louisiana Department of Health on April 10 claims that the state’s Medicaid expansion – by opening the program to able-bodied adults – will generate billions of dollars in economic activity and thousands of jobs. The report’s flawed perspective cannot mask the state’s poor track record at growing the economy and jobs the past few years – an environment which current proposals for tax increases would only further undermine.

I. The Louisiana Department of Health’s report is factually inaccurate. The Louisiana Department of Health’s pro-Medicaid report discusses “net federal money” gained from the state’s Medicaid expansion, but in reality, it only looks at Medicaid-specific dollars. This perspective ignores the fact that people were dropping Obamacare Exchange coverage to enroll in the Medicaid expansion – and losing federal subsidy dollars in the process.

Over the past two years, subsidized enrollment on Louisiana’s health insurance Exchange has fallen nearly in half—from 170,806 in March 2016 to 93,865 earlier this year. The dramatic drop in enrollment illustrates that many individuals qualified for federal Exchange subsidies prior to expansion taking effect, and then switched to Medicaid.

The report’s discussion of “net new federal dollars” inaccurately ignores the substantial funding in federal Exchange subsidies that at least some expansion enrollees gave up by enrolling in Medicaid. In 2012, CBO noted that, for similarly situated low-income individuals, Exchange subsidies would average about $9,000 per year, but Medicaid coverage would cost $6,000. For those individuals who would have qualified for discounted Exchange policies, their Medicaid coverage may have actually cost Louisiana additional federal dollars – and jobs – because Medicaid could cost less than federal insurance subsidies.

Moreover, the Legislative Fiscal Office in 2015 assumed that approximately 20 percent of the enrollees in expansion would give up other private coverage to enroll in Medicaid. If Medicaid enrollees dropped employer-sponsored coverage to enroll in expansion, the supposedly “new” federal subsidy dollars would instead supplant existing coverage subsidies provided by the employer. The report does not acknowledge this trade-off.

II. Money doesn’t grow on trees – and tax hikes caused by Medicaid expansion actually cost Louisiana jobs. The report only examines federal spending on Medicaid, and not the tax increases used to finance that federal spending. Those tax increases cause job losses, but the report makes no attempt to count them. However, as others have noted, Christina Romer, one of former President Barack Obama’s chief economic advisers, believes that, on an economic impact basis, tax increases used to fund federal spending far outweigh that federal spending.

III. Medicaid creates a disincentive for work. The Congressional Budget Office concluded that Obamacare would, as a whole, reduce the workforce by the equivalent of 2.5 million jobs; Medicaid expansion provides some of the reason for that net job reduction. CBO analysts note that, because an extra dollar of income would cause individuals to lose Medicaid eligibility – subjecting them to sizable premiums and deductibles for Exchange coverage – expansion “effectively creates a tax on additional earnings” that “reduces the incentive to work.”

IV. Health care is not a jobs program. Those words come from none other than Zeke Emanuel, a former White House adviser who helped craft Obamacare. In a 2013 article in The New York Times, Emanuel noted that “the more we can control health care costs, the more Americans will prosper.” Other researchers from Harvard University have made the same point: “It is tempting to think that rising health care employment is a boon, but if the same outcomes can be achieved with lower employment and fewer resources, that leaves extra money to devote to other important public and private priorities.”

Taking the Governor’s report to its logical conclusion, to maximize the generous federal match rate for Medicaid expansion, Louisiana should, for instance, start paying doctors $5,000 for a simple office visit. That added Medicaid spending would create even more jobs and economic growth—as would a government program paying individuals to dig ditches and fill them in again. But, as the Harvard researchers note, neither approach would represent the most efficient use of taxpayer resources. And the report makes little attempt to argue that Medicaid expansion represents the best and most efficient source of economic activity.

V. Asking Washington for more funding isn’t a solution. The report argues for more reliance on federal dollars to support Louisiana, even though, according to the Pew Charitable Trusts, the state budget remains the most dependent on spending from Washington. As of 2015 – even before Medicaid expansion took effect in Louisiana – fully 42.2 percent of the state budget came from Washington. With the federal government facing a $21 trillion (and rising) debt, making Louisiana even more dependent on Washington’s largesse represents a recipe for fiscal ruin.

VI. If Medicaid is a job creator, why is Louisiana still down jobs year over year? If Medicaid expansion has created so many jobs, why has Louisiana lost a net of 200 jobs in the past year? According to the most recent Bureau of Labor Statistics data, the Louisiana workforce shrank from February 2017 to February 2018. With a shrinking workforce, the second-lowest economic growth rate in the country, and the largest decrease in incomes nationwide in 2016, if Louisiana receives any more “prosperity” from Medicaid expansion, the current malaise in the state could turn into a full-fledged economic crisis.

Conclusion

At a time when Louisiana faces its own “fiscal cliff,” the Department of Health should have better things to do with taxpayers’ hard-earned dollars than commission what amounts to a misleading propaganda campaign claiming that more government can grow Louisiana’s economy. Rather than spending time growing the public sector, policy-makers should instead focus on giving businesses the tools they need to create jobs in the private sector.

This post was originally published by the Pelican Institute.

Reforming Medicaid in Louisiana

A PDF of this document is available at the Pelican Institute website.

Two years ago, the incoming administration of Gov. John Bel Edwards (D-LA) pledged that expanding Medicaid to able-bodied adults, as permitted under Obamacare, would help solve Louisiana’s ongoing structural budget shortfalls. Unfortunately, the Governor’s promises have not come to fruition. Enrollment in the Medicaid expansion has exceeded projections—as have the costs associated with that expansion. As a result, Louisiana faces a scenario plaguing many states that expanded Medicaid: Rising spending on expansion crowding out other important budgetary priorities like education, transportation, and law enforcement.

Democrats have already proposed a series of tax increases to “solve” the state’s fiscal crisis.[1] But that “solution” misses the point—and won’t actually solve the problem. Rather than raising taxes yet again, to pay for more unaffordable health care spending, Louisiana should both right-size and reform its Medicaid program. Right-sizing the program would involve unwinding the massive expansion to the able-bodied—working-age adults without dependent children—to return Medicaid to serving the populations for which it was originally designed—pregnant women, children, senior citizens, and individuals with disabilities.

After right-sizing the Medicaid program, state leaders should then work to reform and modernize Medicaid for the 21st century. Specifically, Louisiana should work with the Trump Administration to enact a comprehensive Medicaid reform waiver. This waiver could include components to improve coordination of beneficiary care, introduce consumer choice elements into Medicaid, provide a smoother transition to work and employer-based coverage for those who are able to work, and improve program integrity to use scarce taxpayer dollars most effectively.

Individually and collectively, the policy solutions outlined in this paper—unwinding Medicaid expansion and embracing a comprehensive waiver to enact additional reforms—would help put Louisiana on a more sustainable fiscal trajectory, eliminating the need for the tax-and-spend battles of the past several years. By so doing, the state could focus more on enacting reforms necessary for the economy to thrive, bringing jobs back to Louisiana.

 

Massive Expansion

Fewer than two years since Louisiana first expanded Medicaid under Obamacare to able-bodied adults, enrollment in the expansion has already shattered expectations. While officials first projected about 306,000 previously uninsured individuals would gain coverage through expansion, within days of Gov. Edwards signing the executive order authorizing Medicaid expansion, state officials revised their estimates dramatically upward. At that time, officials claimed that as many as 450,000 Louisianans could be added to the Medicaid rolls by expansion.[2] However, even this projection turned out to be an under-estimate, as by December 2017 enrollment reached 456,004, exceeding the higher projection.[3] Louisiana officials admit that, as enrollment exceeds the original 306,000 projection, costs to the state will increase, reducing the state’s supposed fiscal savings.[4]

The fact that Louisiana’s Medicaid expansion has exceeded enrollment projections should come as no surprise. In fact, virtually every state that expanded Medicaid to the able-bodied under Obamacare has seen vastly more enrollees than they had originally planned for. A November 2016 study by the Foundation for Government Accountability (FGA) showed that 24 states’ Medicaid expansion had within two years exceeded projections for the maximum number of individuals that would ever enroll in the Obamacare expansion by an average of 110%.[5]

An earlier report by FGA, issued in April 2015, found that enrollment had exceeded estimates in 17 states. Collectively, those 17 states exceeded their maximum enrollment projections by an average of “only” 61%.[6] By comparison, just eighteen months later, a total of 24 states had exceeded their maximum enrollment projections by more than 110%—amounting to over 6 million enrollees more than projected.[7] More states continue to enroll many more individuals than projected in Medicaid expansion, even after many states already exceeded projections in the expansion’s first year.

The enrollment explosion in “free” Medicaid contrasts with more limited enrollment in Obamacare’s other venue for coverage expansion—health insurance Exchanges. While Medicaid enrollment vastly exceeded projections, as of the 2017 open enrollment period, effectuated Exchange enrollment stood at only 10.3 million individuals.[8] This enrollment figure represents less than half the 23 million individuals the Congressional Budget Office estimated at the time of Obamacare’s enactment would sign up for Exchange coverage in 2017.[9]

Moreover, studies suggest that only individuals who qualify for the most generous subsidies have joined insurance Exchanges in significant numbers. The consulting firm Avalere Health concluded that more than four in five (81%) eligible individuals with incomes of under 150% of the federal poverty level—who qualify for both the richest premiums subsidies and reduced deductibles and co-payments—have signed up for Exchange coverage.[10] By comparison, only about one-sixth (16%) of those with incomes between three and four times the poverty level—who qualify for much smaller premium subsidies, and receive no help with cost-sharing—purchased Exchange coverage.[11] Put simply, while individuals quickly sign up for “free,” or nearly free, health insurance coverage, including through Medicaid, they have signed up much more slowly for health plans for which they must make a financial contribution.

 

Massive—and Rising—Costs

Even prior to Obamacare, Medicaid had grown exponentially over the past several decades to become a larger and larger share of Louisiana’s state budget. In fiscal year 1985, Medicaid represented 8.9% of Louisiana’s total budgetary expenditures.[12] Thirty years later, in fiscal year 2015, Medicaid had more than tripled as a share of the state budget, rising to 27.6% of total expenditures.[13]

The rising tide of Medicaid spending in Louisiana echoes national trends. In fiscal year 1985, Medicaid consumed an average of 9.7% of total state expenditures across all 50 states.[14] By comparison, in fiscal year 2013, the last year before Obamacare’s expansion took effect, Medicaid represented an average of 24.4% of state spending.[15] Over a quarter-century, then, Medicaid spending more than doubled as a share of state spending—before most of Obamacare’s effects kicked in.

However, even when compared to other states, Louisiana suffered from skyrocketing Medicaid spending prior to Obamacare expansion taking effect. The Pew Charitable Trusts noted that, during the years 2000-2015, Medicaid grew the fastest in Louisiana when measured as a share of the state’s own spending. During that time, Medicaid grew by 12.8 percentage points—from 10.5% of the state’s spending to 23.3% of state dollars.[16] As a result of that growth in Medicaid spending, Louisiana was the state most dependent on federal funds in fiscal year 2015, using money from Washington to comprise 42.2% of its budget—again, before Obamacare’s Medicaid expansion ever took effect in Louisiana.[17]

States like Louisiana that chose to expand Medicaid to the able-bodied face additional rising costs, due to both higher than expected enrollment in Medicaid expansion and higher than expected per-beneficiary spending for those expansion enrollees. In late 2016, the Centers for Medicare and Medicaid Services’ (CMS) Office of the Actuary released its annual report on the state of the Medicaid program. The report found that, contrary to projections that expansion enrollees would have per-beneficiary costs lower than previously eligible Medicaid beneficiaries, states actually faced higher per-beneficiary costs for the expansion population than their prior enrollees.[18] In 2016, expansion enrollees cost the Medicaid program an average of $5,926, compared to average spending of $5,215 for non-expansion adults.[19]

The higher spending on Medicaid expansion enrollees has now persisted for several years, contrary to predictions before the coverage expansion took effect. At first, the CMS actuary thought that the higher spending came from pent-up demand for health care—previously uninsured enrollees using their newfound Medicaid coverage to cover heretofore-neglected health conditions.[20] However, the 2014, 2015, and 2016 annual reports on Medicaid all demonstrated higher per-beneficiary spending for expansion populations than those eligible prior to Obamacare.[21]

Echoing the national trends, Medicaid per-beneficiary spending in Louisiana remains higher for expansion enrollees than previously eligible beneficiaries. State officials admit that in fiscal year 2017, spending for expansion enrollees totaled $6,712 per adult—more than 20% higher than the $5,575 spent on non-expansion enrollees.[22] Liberal supporters of the expansion claim that the disparity arises from pent-up demand by new enrollees—the same assumption federal actuaries made.[23] However, the higher spending by expansion enrollees over several years at the federal level suggests that higher spending by expansion enrollees may persist in Louisiana as well.

With enrollment higher than initial projections, and spending on those new enrollees averaging more than anticipated, many states now face fiscal crises brought on by their Medicaid expansions. Under the Obamacare statute, states began to pay a share of the costs for the Medicaid expansion in calendar year 2017. Moreover, states’ 5% share of expansion enrollees’ health costs in 2017 will double over the next few years, rising to 6% in calendar year 2018, 7% in calendar year 2019, and 10% in calendar year 2020.[24] Given the vast sums that states already devote to their Medicaid programs, paying five percent—let alone ten percent—of expansion costs will add significant new stresses to state budgets.

Even as Louisiana expanded Medicaid to the able-bodied, other states began facing expansion’s negative effects, with budget shortfalls looming because the expansion exceeded projected costs. Kentucky’s estimated costs of expansion in fiscal years 2017 and 2018 rose from $107 million to $257 million—a more than doubling of costs that will take money away from other state priorities like education, transportation, or law enforcement.[25] Likewise, Ohio’s budget for Medicaid expansion more than doubled compared to the state’s prior projections, leaving legislators scrambling to cut money from other programs to stem the shortfall.[26]

With Medicaid expansion squeezing state budgets, even Democratic state legislators across the country have contemplated what some liberals might consider apostasy—scaling back and right-sizing the Medicaid program to reflect competing fiscal priorities. Consider comments from New Mexico state senator Howie Morales, a Democrat:

When you’re looking at a state budget and there are only so many dollars to go around, obviously it’s a concern. The most vulnerable of our citizens—the children, our senior citizens, our veterans, individuals with disabilities—I get concerned that those could be areas that get hit.[27]

Other legislators agree, with an Oregon Democratic State Senator reflecting on his state’s $500 million budget shortfall by stating that “the only way to keep this [budget situation] manageable is to keep those costs under control, get people off Medicaid.”[28]

The growth in Medicaid spending has resulted in cascading effects across states—including in Louisiana. As the state’s budget history demonstrates, a dollar of spending on Medicaid results in fewer dollars for other programs. For instance, as the share of Louisiana’s budget devoted to Medicaid more than tripled from 1985 through 2015, the share of the budget dedicated to primary and secondary education fell from 23.5% to 18.8%, the share dedicated to higher education fell from 10.9% to 9.9%, and the share dedicated to transportation fell by half, from 11.2% to 5.6%.[29] If Louisiana continues down its current path, schools, universities, and roads will face a continued squeeze as Medicaid consumes more and more state resources.

Moreover, the current Medicaid-imposed woes that states face assume that the enhanced federal match remains static—a far from safe assumption. With the federal debt recently topping $20 trillion, the belief that Washington will continue to pay 90 percent of states’ expansion costs in 2020 and every year thereafter may strike some as an overly rosy scenario.[30] Indeed, President Obama himself once proposed reducing the federal Medicaid match by $100 billion over ten years through a so-called “blended rate” policy.[31] Only an outcry from liberals, combined with the 2012 Supreme Court ruling that made Medicaid expansion optional for states, eventually persuaded President Obama to abandon the proposal.[32] However,  given Washington’s own dire fiscal situation, the concept could well return in future years.

More recently, Congress has begun taking action to rein in another enhanced match provided to states as part of Obamacare. Specifically, Section 2101 of the law provided a 23 percent increase in the federal match to State Children’s Health Insurance Programs (SCHIP) across the country.[33] As a result of the increase, Louisiana’s SCHIP match rate in the current fiscal year ending September 30 stands at 97.58%, instead of the usual 74.58%.[34] A total of 12 states, plus the District of Columbia, currently receive a 100% match for their SCHIP programs, meaning the federal government effectively funds all of the health costs of these states’ SCHIP enrollees.[35]

However, the costs of the enhanced federal SCHIP match on Washington’s budget have led Congress to eliminate that enhanced match within the next few years.  SCHIP legislation signed into law earlier this month will phase out the enhanced match—lowering the 23 percent match to 11.5 percent in fiscal year 2020, while eliminating it altogether in fiscal 2021.[36] With bipartisan agreement within Congress on eliminating Obamacare’s enhanced SCHIP match rate, state lawmakers would do well to consider whether and when Congress will likewise eliminate the enhanced match for Obamacare’s Medicaid expansion to the able-bodied.

 

Difficulties for the Most Vulnerable

In addition to skyrocketing enrollment and costs, the Medicaid expansion has hurt some of the most vulnerable Americans in society, because Obamacare effectively gives state programs financial incentives to discriminate against individuals with disabilities.[37] Traditionally, the federal government provides states with a Medicaid match through a statutory formula comparing a state’s average income to the national average. For their traditional beneficiaries—that is, pregnant women, children, the aged, medically frail, and individuals with disabilities—states receive a federal Medicaid match ranging from 50% to 83%. For the current fiscal year, Louisiana will receive a 63.69% match rate for these populations.[38]

However, as noted above, Obamacare gives states a much greater federal match to cover its expansion population—individuals with incomes of under 138 percent of the poverty level ($34,638 for a family of four in 2017). For calendar year 2017, states received a 95% federal match, which will fall slightly to 94% in 2018, 93% in 2019, and 90% in 2020.[39] Put another way, Louisiana will receive over 30 cents more on the dollar from the federal government to cover the expansion population this year than it will to cover traditional beneficiaries eligible for Medicaid prior to Obamacare.

This yawning disparity in the federal match favoring expansion enrollees over traditional beneficiaries comes despite noteworthy characteristics of the individuals who qualify for Obamacare’s Medicaid expansion. Specifically, the liberal Urban Institute found that nationwide, 82.4% of the expansion population consisted of able-bodied adults of working age.[40] In Louisiana, nearly three-quarters (74.9%) of projected expansion enrollees represented adults without dependent children.[41]

In other words, the federal government offers—and under the current governor, Louisiana accepted—an arrangement whereby states receive a significantly greater federal match to provide services to able-bodied adults of working age than to provide services to the individuals for whom Medicaid was traditionally designed: The medically frail, aged, and individuals with disabilities. Moreover, this disparity comes as many of the latter need critically important services, which they cannot currently obtain from Louisiana’s Medicaid program.

While the federal Medicaid statute requires state programs to provide medical coverage to individuals with disabilities, it does not require them to provide personal care services outside a nursing home setting. Because the law makes such home and community-based services (HCBS) optional, states can utilize waiting lists to control access to such services—and many, including Louisiana, do just that. Overall, more than 640,000 individuals with disabilities remain on lists waiting to access HCBS nationwide—including 62,828 in Louisiana.[42]

Prior to Louisiana accepting Obamacare’s Medicaid expansion to the able-bodied, the state prioritized coverage for individuals with disabilities. Instead of pushing to expand Medicaid under Obamacare, efforts instead focused on providing funds necessary to reduce the state’s HCBS waiting list for individuals with disabilities.[43] However, the current administration has taken the exact opposite tack—prioritizing an expansion of coverage for the able-bodied over the personal care needs of the most vulnerable Louisianans. As a result, able-bodied adults with low incomes can qualify for Medicaid immediately, while individuals with developmental disabilities must wait an average of seven years just to be evaluated for home-based care for their personal needs.[44]

Several states that expanded Medicaid under Obamacare before Louisiana provide evidence of the damage that expansion has caused for society’s most vulnerable. In Arkansas, while Gov. Asa Hutchinson pledged to reduce his state’s HCBS waiting lists in half under his administration, the rolls have risen 25 percent—even as the state continues its Medicaid expansion to the able-bodied.[45] Since the state expanded Medicaid to the able-bodied, at least 79 individuals with disabilities have died while on waiting lists seeking access to home-based care.[46]

Vulnerable residents in other states have likewise suffered as a result of Obamacare’s Medicaid expansion. In Ohio, the administration of Gov. John Kasich reduced eligibility for 34,000 individuals with disabilities, even while expanding Medicaid to the able-bodied.[47] In Illinois, lawmakers voted to allow Cook County to expand Medicaid early on the same day in which they also voted to reduce medication access for individuals with disabilities.[48] In that state, at least 752 residents with disabilities have died awaiting access to home-based care since the state embraced Obamacare’s Medicaid expansion.[49]

The claims of its proponents to the contrary, any policy that prioritizes able-bodied adults over the most vulnerable in society represents the antithesis of compassion. As more and more individuals crowd on to the Medicaid rolls, literally hundreds of thousands of individuals with disabilities wait for access to care—and in some cases, die well before they receive it. Any compassionate society should focus its greatest efforts on protecting the most vulnerable, meaning no state should expand Medicaid to the able-bodied without first having eliminated entirely its waiting list of individuals with disabilities seeking home-based care.

While disadvantaging the most vulnerable in society, who literally wait for years for access to personal care paid for by Medicaid, expansion of the Medicaid entitlement also disadvantages the expansion’s purported beneficiaries—able-bodied adults within working age—in several respects. Medicaid generally provides poorer health outcomes than most other forms of coverage, such that some analysts have questioned whether its patients fare worse than the uninsured.[50]

In general, states provide low reimbursement levels to doctors and hospitals treating Medicaid patients, in large part due to the fiscal pressures discussed above. However, these low reimbursement rates mean many medical providers do not accept Medicaid patients. One study found that specialty physicians denied appointments for two-thirds of Medicaid patients, compared to only an 11% denial rate for patients with private insurance. Moreover, “the average wait time for Medicaid” enrollees who did obtain an appointment “was 22 days longer than that for privately insured children.”[51] Through their “secret shopper” survey, the authors “found a disparity in access to outpatient specialty care between children with public insurance and those with private insurance.”

Louisiana does not deviate from the general pattern of state Medicaid programs providing poor reimbursements to physicians, as the state’s reimbursement levels stand slightly below the already low national average. Overall, the state pays physicians 70% of Medicare reimbursement levels, below the national Medicaid average of 72% of Medicare levels.[52] In primary care, Louisiana reimburses doctors at 67% of Medicare rates, one percentage point above the national average of 66%.[53] And in obstetrics, Louisiana reimburses doctors 70% of Medicare rates, eleven points below the national Medicaid average of 81%.[54] The comparatively paltry rates that Louisiana pays obstetricians come despite the fact that nearly two-thirds (65%) of babies born in the state in 2015 (i.e., before Medicaid expansion took effect) were paid for by Medicaid—the third highest rate of births paid for by Medicaid nationwide.[55]

The lack of access to physician care helps explain Medicaid’s middling performance in improving health outcomes. Most notably, the Oregon Health Insurance Experiment—which compared the health of individuals randomly selected to enroll in Medicaid with those who remained uninsured—found no measurable improvement in physical outcomes for the former group when compared to the latter.[56] The Oregon study also found that Medicaid beneficiaries utilized the emergency room 40 percent more than uninsured patients, a difference which persisted over time. These data suggest that patients lack a usual access to primary care that could alleviate medical conditions before necessitating emergency treatment—a further indication that Medicaid leaves much to be desired as a form of health coverage.[57]

Both Medicaid administrators and beneficiaries acknowledge the program’s shortcomings in providing access to care. One former program head called a Medicaid card a “hunting license”—a government-granted permission slip allowing beneficiaries to try to find a physician who will treat them.[58] With beneficiaries not even considering Medicaid “real insurance,” some would question the wisdom of consigning such a large—and growing—number of individuals to a program that provides such an uneven quality of care.[59]

 

Discouraging Work

In addition to providing beneficiaries with poor quality care, Medicaid expansion includes an in-built “poverty trap” that discourages entrepreneurship and social advancement. Specifically, the law includes numerous effects that will discourage work, and ultimately keep low-income individuals trapped in poverty for longer periods, while also stunting economic growth. According to the Congressional Budget Office (CBO), the Medicaid expansion represents one part of a larger Obamacare scheme that will reduce the labor supply nationally by the equivalent of 2.5 million full-time jobs by 2024.[60]

CBO believes that Medicaid expansion will reduce overall incentives to work. Most notably, Medicaid expansion creates an “income cliff,” whereby one additional dollar of income will cause a family to lose Medicaid eligibility entirely—subjecting them to hundreds, if not thousands, of dollars in health insurance premiums, deductibles, and co-payments as a result. As a result, CBO believes that the expansion will reduce beneficiaries’ labor force participation by about 4 percent by “creat[ing] a tax on additional earnings for those considering job changes.”[61] In other words, individuals will specifically avoid seeking a promotion, additional hours, or a bonus, because it will cause them to lose eligibility for Medicaid—the definition of a “poverty trap” that discourages low-income individuals from advancing their social strata.

Data from the liberal Urban Institute released prior to Obamacare taking effect suggest that most beneficiaries who qualify for Medicaid expansion represent individuals who could be in work, or preparing for work. In Louisiana, more than seven in eight adults who qualify for the expansion are of prime working age—either ages 19-24 (24.5%), 25-34 (25.7%), or 35-54 (37.4%).[62] With nearly three-quarters of Louisianans who qualify for expansion adults without dependent children, as noted above, many of these individuals should be able to work, or prepare for work.

Unfortunately, national data suggest that most beneficiaries enrolled in Medicaid are not working. Specifically, 2015 Census Bureau data indicate that more than half (52%) of non-disabled, working-age Medicaid beneficiaries are not working.[63] Only about one in six (16%) non-disabled Medicaid beneficiaries work full-time year-round, while about one in three (32%) work part-time, or for part of the year.[64]

If able-bodied individuals who currently qualify for Obamacare’s Medicaid expansion pursued full-time employment, many of them would no longer qualify for the expansion. The expansion applies to individuals with household income below 138 percent of the federal poverty level—which in 2018 equals $16,753 for a single individual, $22,715 for a couple, and $34,638 for a family of four.[65] At these levels, a couple each working 35 hours per week, 50 weeks per year, making the federal minimum wage of $7.25 per hour, or an individual working 40 hours per week, 50 weeks per year, making $8.50 per hour, would earn enough income to exceed the Medicaid eligibility thresholds.

While CBO believes Medicaid expansion will discourage work, evidence suggests that unwinding the expansion would increase employment, and employment-related search activity. A study of the Medicaid program in Tennessee, where the state scaled back the program in 2005 due to significant cost overruns, found that the reduction in Medicaid eligibility encouraged beneficiaries to look for work, and ultimately increased employment, as individuals looked for employment-based coverage.[66] Whereas Obamacare’s skewed incentives discourage work, scaling back Medicaid expansion could have salutary economic effects, by expanding the labor force in ways that could grow the economy.

 

What Lawmakers Should Do

The evidence shows the damage caused by Medicaid expansion, both in Louisiana and across the country. Soaring enrollment and higher-than-expected costs have led to fiscal crises in many states—crises that will only grow as states’ share of expansion costs increase in the coming years. Meanwhile, the urgent needs of many vulnerable citizens have taken a back seat, as Obamacare gives states more incentives to cover able-bodied adults than individuals with disabilities.

As the legislature considers its policy options, it should focus on both short-term and long-term solutions. In the short term, Louisiana should begin the process of winding down the Medicaid expansion to able-bodied adults, as one way of alleviating immediate budgetary pressures. In the longer term, the state should take advantage of the flexibility promised by the Trump Administration to consider more innovative reforms to the Medicaid program.

Enrollment Freeze:              The best way to end the high costs associated with the Medicaid expansion would involve freezing enrollment to new entrants.[67] Such a policy would allow individuals who already qualified for the expansion to remain as long as they maintain eligibility for the program. This proposal, passed by legislators in places like Ohio and Arkansas, would provide an orderly wind-down of the expansion, reducing costs to the state over time, while allowing people to transition into employer-sponsored insurance or other coverage as they lose Medicaid eligibility. [68]

One study released in early 2017 calculated the savings from a nationwide Medicaid freeze beginning in fiscal year 2018. Over a decade, this Medicaid freeze would generate approximately $56-64 billion in savings to state Medicaid programs, along with more than half a trillion dollars in savings to the federal government.[69] These savings would come without terminating Medicaid participation for a single beneficiary currently eligible for the program. The sizable savings provided to both the states and the federal government under a potential Medicaid freeze illustrates the need to wind down Medicaid’s expansion to the able-bodied in an orderly way, to restore the program’s focus to the populations for which it was originally intended.

Comprehensive Waiver:     Last March, then-Health and Human Services Secretary Tom Price and CMS Administrator Seema Verma sent a letter to the nation’s governors indicating their desire to expand state flexibility within the Medicaid program.[70] Since then, several organizations have published reports highlighting elements and policies that states could use to reform their Medicaid programs.[71] A bold waiver incorporating many of these policies could transform Medicaid programs across the country.

Louisiana should consider submitting a comprehensive waiver request to CMS. Such a waiver could include:

Consumer-Oriented Options:              Using Health Savings Account-like mechanisms would encourage beneficiaries to serve as smart shoppers of health care—generating savings that they could use once they leave the Medicaid program. Whether through Health Opportunity Accounts—an innovation passed by Congress in 2005, but effectively repealed under the Obama Administration—“right-to-shop” programs that give beneficiaries a chance to share in the savings from obtaining lower costs for non-emergency medical procedures, or other programs, giving beneficiaries financial incentives to act as smart health care consumers could benefit them as well as the Medicaid program.[72]

Wellness Incentives:                As with the consumer options above, providing incentives for healthy behaviors would encourage beneficiaries to improve their health, while giving them a potential source of financial savings. During the debate on Obamacare in 2009-10, wellness incentives proved one of the few sources of bipartisan agreement, thanks to the way in which Safeway and other firms reduced health costs through such reforms.[73] Particularly given the state’s high rates of obesity, Louisiana should consider bringing the “Safeway model” to the state’s Medicaid program.[74]

Premium Assistance:               Providing more flexible benefits to individuals with an offer of employer-sponsored coverage would allow Medicaid to supplement that coverage, thereby reducing costs and giving individuals access to higher-quality private insurance. Other policies in this vein might include a beneficiary waiting period designed to prevent “crowd-out”—individuals dropping private coverage to enroll in government programs—and Health Savings Account coverage, currently prohibited under two separate premium assistance programs.[75] These changes would help beneficiaries make a smoother transition off of the Medicaid rolls and into a life of work.

Home and Community-Based Services:             Focusing on ways to deliver care to beneficiaries outside of nursing homes could reduce costly Medicaid spending in institutional settings. Most importantly, it would enable patients to stay in their homes—most beneficiaries’ desired outcome. For instance, a state waiver could cap the number of nursing home slots available, or require beneficiaries to try receiving care at home prior to entering a nursing facility.[76] Collectively, these policies should create an affirmative bias in favor of care at home, rather than care at a nursing institution.

Work Requirements:               Unlike the Obama Administration, the Trump Administration has indicated a willingness to accept work requirements as part of a Medicaid waiver request.[77] Earlier this month, CMS issued a letter to state Medicaid directors indicating parameters to guide states as they prepare community engagement requirements—a document that reiterated the positive effects that work can have on beneficiaries’ economic success, self-sufficiency, and overall health.[78] Requiring that appropriate adult populations either work, look for work, or prepare for work, while exempting individuals with disabilities and other medically frail individuals, would further promote a transition from welfare into work.

Program Integrity:     Verifying eligibility on a regular basis would ensure that state and federal resources remain targeted to those most in need—an important priority given the way in which scam artists in Louisiana have sought to abuse the Medicaid program.[79] Increasing penalties for fraud would halt scam artists, and could lower Medicaid’s rate of improper payments.[80] More robust asset recovery measures—ensuring Medicaid remains the payer of last resort, not that of first instance—would help preserve scarce state and federal resources for those who need them most.[81]

The state of Rhode Island demonstrates the power of a comprehensive waiver to transform a Medicaid program. Its global compact waiver, approved in the waning days of President George W. Bush’s Administration in January 2009, allowed that state to improve Medicaid by providing more, better, and more timely care to beneficiaries. Thanks to the global compact waiver, Rhode Island actually reduced its per beneficiary Medicaid costs in absolute (i.e., before-inflation) terms over a four-year period[82]—and did so not by cutting access to care, but by improving it.[83] The success of the Rhode Island experiment illustrates the way in which Medicaid reform, done right, can simultaneously save money and improve health—a lesson the legislature should look to bring to Louisiana.

 

Conclusion

Given the state’s structural budget shortfall, and the significant costs associated with Medicaid expansion, Louisiana stands at a turning point. The legislature could continue down their current path, and hope that yet another series of tax increases will sate the growing health care costs that threaten to consume the state’s entire budget.

Thankfully, legislators have another option. Unwinding the Medicaid expansion gradually, while laying the groundwork to submit a comprehensive Medicaid waiver request to CMS, would in combination help turn the fiscal tide. Freezing Medicaid enrollment for able-bodied adults would re-direct the program towards the most vulnerable in society—those for whom Medicaid was originally designed. Likewise, a comprehensive waiver would re-orient and update Medicaid for a 21st century health care system, saving money by providing better care.

Given the two options, the choice for Louisiana seems clear. The state should use the flexibility promised by Washington to unwind Medicaid expansion for the able-bodied, and modernize and re-orient the program toward the program’s original intended beneficiaries. By so doing, the state can go a long way towards resolving its structural fiscal shortfalls, while also improving the care provided to some of Louisiana’s most vulnerable residents.

 

[1] Melinda Deslatte, “Louisiana Governor Offers Tax Ideas to Close $1 Billion Budget Gap,” Associated Press December 18, 2017, https://apnews.com/58833e0c265f4de6b26e465004c01c25/Louisiana-governor-offer.

[2] Kevin Litten, “Louisiana’s Medicaid Expansion Enrollment Could Grow to 450,000,” Times-Picayune January 20, 2016, http://www.nola.com/politics/index.ssf/2016/01/medicaid_expansion_500000.html.

[3] Louisiana Department of Health, “Louisiana Medicaid Expansion Dashboard,” http://www.ldh.la.gov/HealthyLaDashboard.

[4] Litten, “Louisiana’s Medicaid Expansion Enrollment Could Grow.”

[5] Jonathan Ingram and Nicholas Horton, “Obamacare Expansion Enrollment Is Shattering Projections,” Foundation for Government Accountability, November 16, 2016, https://thefga.org/download/ObamaCare-Expansion-is-Shattering-Projections.PDF, p. 5.

[6] Jonathan Ingram and Nicholas Horton, “The Obamacare Expansion Enrollment Explosion,” Foundation for Government Accountability,” April 20, 2015, https://thefga.org/wp-content/uploads/2015/04/ExpansionEnrollmentExplosion-Final3.pdf.

[7] Ingram and Horton, “Obamacare Expansion Enrollment Is Shattering Projections.”

[8] Centers for Medicare and Medicaid Services, “2017 Effectuated Enrollment Snapshot,” June 12, 2017, https://downloads.cms.gov/files/effectuated-enrollment-snapshot-report-06-12-17.pdf. Effectuated enrollment represents coverage for which individuals have both selected an insurance plan and paid at least one month’s premium.

[9] Congressional Budget Office, estimate of H.R. 4872, Health Care and Education Reconciliation Act, in concert with H.R. 3590, Patient Protection and Affordable Care Act, March 20, 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/amendreconprop.pdf, Table 4, p. 21.

[10] Avalere Health, “The State of Exchanges: A Review of Trends and Opportunities to Grow and Stabilize the Market,” report for Aetna, October 2016, http://go.avalere.com/acton/attachment/12909/f-0352/1/-/-/-/-/20161005_Avalere_State%20of%20Exchanges_Final_.pdf, Figure 3, p. 6.

[11] Ibid.

[12] National Association of State Budget Officers, “The State Expenditure Report,” July 1987, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1987.PDF, Medicaid Expenditures as a Percentage of Total Expenditures, p. 30.

[13] National Association of State Budget Officers, “State Expenditure Report,” November 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/State%20Expenditure%20Report%20(Fiscal%202014-2016)%20-%20S.pdf, Table 5: State Spending by Function as a Percentage of Total State Expenditures, p. 13.

[14] National Association of State Budget Officers, “The State Expenditure Report.”

[15] National Association of State Budget Officers, “Fiscal Survey of States: Spring 2014,” https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/NASBO%20Spring%202014%20Fiscal%20Survey%20(security).pdf, p. xi.

[16] Pew Charitable Trusts, “Fiscal 50: State Trends and Analysis,” http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/fiscal-50#ind7, Change in State Medicaid Spending as a Share of Own-Source Revenue, 2000 and 2015.

[17] Ibid., http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/fiscal-50#ind1, Percentage of State Revenue from Federal Funds, Fiscal Year 2015.

[18] For an analysis of the ways that the CMS actuary and the Congressional Budget Office have changed their baseline projections of Medicaid spending over time, see Brian Blase, “Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems,” Mercatus Center, September 2016, https://www.mercatus.org/system/files/mercatus-blase-medicaid-structural-problems-v1.pdf, pp. 15-20.

[19] Centers for Medicare and Medicaid Services Office of the Actuary, “2016 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2016, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2016.pdf, p. 22.

[20] Centers for Medicare and Medicaid Services Office of the Actuary, “2014 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2014, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2014.pdf, pp. 36-38.

[21] Centers for Medicare and Medicaid Services Office of the Actuary, “2015 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2015, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2015.pdf, p. 27.

[22] Cited in Jeanie Donovan, “Setting the Record Straight on Medicaid,” Louisiana Budget Project, August 4, 2017, http://www.labudget.org/lbp/2017/08/setting-the-record-straight-on-medicaid/.

[23] Ibid.

[24] 42 U.S.C. 1396d(y)(1), as codified by Section 2001(a) of the Patient Protection and Affordable Care Act, P.L. 111-148.

[25] Christina Cassidy, “Rising Cost of Medicaid Expansion is Unnerving Some States,” Associated Press October 5, 2016, http://bigstory.ap.org/article/4219bc875f114b938d38766c5321331a/rising-cost-medicaid-expansion-unnerving-some-states.

[26] Ibid.

[27] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[28] Ibid.

[29] “The State Expenditure Report,” Primary and Secondary Education Expenditures as a Percentage of Total Expenditures, Higher Education Expenditures as a Percentage of Total State Expenditures, and Transportation Expenditures as a Percentage of Total State Expenditures; “State Expenditure Report,” Table 5: State Spending by Function.

[30] United States Treasury, “The Debt to the Penny and Who Holds It,” total public debt outstanding as of October 26, 2017, https://www.treasurydirect.gov/NP/debt/current.

[31] White House Office of the Press Secretary, “Fact Sheet: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility,” April 13, 2011, https://obamawhitehouse.archives.gov/the-press-office/2011/04/13/fact-sheet-presidents-framework-shared-prosperity-and-shared-fiscal-resp.

[32] NFIB v. Sebelius, 567 U.S. 519 (2012), https://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf; Sam Baker, “White House Drops Support for Major Medicaid Cut,” The Hill December 10, 2012, http://thehill.com/policy/healthcare/272041-white-house-drops-support-for-major-medicaid-cut; Centers for Medicare and Medicaid Services, “Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid,” December 10, 2012, https://www.cms.gov/CCIIO/Resources/Files/Downloads/exchanges-faqs-12-10-2012.pdf.

[33] 42 U.S.C. 1397ee(b), as amended by Section 2101(a) of PPACA.

[34] Department of Health and Human Services, “Federal Financial Participation in State Assistance Expenditures,” Federal Register November 15, 2016, pp. 80078-80080, Table 1, https://www.gpo.gov/fdsys/pkg/FR-2016-11-15/pdf/2016-27424.pdf.

[35] Ibid.

[36] Section 3005 of the HEALTHY KIDS Act, P.L. 115-120.

[37] See also Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Citizenship, Marriage, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[38] “Federal Financial Participation in State Assistance Expenditures.”

[39] 42 U.S.C. 1396d(y)(1), as codified by Section 2001(a) of PPACA.

[40] Genevieve M. Kenney et al., “Opting in to the Medicaid Expansion Under the ACA: Who Are the Uninsured Adults Who Could Gain Health Insurance Coverage?” Urban Institute, August 2012, http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412630-Opting-in-to-the-Medicaid-Expansion-under-the-ACA.PDF, p. 9, Appendix Table 2.

[41] Ibid.

[42] Kaiser Family Foundation, “Waiting List Enrollment for Medicaid Section 1915(c) Home- and Community-Based Services Waivers,” Kaiser Commission on Medicaid and the Uninsured 2015 survey, http://kff.org/health-reform/state-indicator/waiting-lists-for-hcbs-waivers/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

[43] Bobby Jindal, “Obamacare Is Anything But Compassionate,” Politico February 9, 2014, http://www.politico.com/magazine/story/2014/02/obamacare-costs-jobs-hurts-most-vulnerable-103299?paginate=false.

[44] Louisiana Department of Health and Hospitals, “Medicaid Waiver Services,” http://www.dhh.la.gov/index.cfm/page/1555.

[45] Jason Pederson, “Waiver Commitment Wavering,” KATV June 15, 2016, http://katv.com/community/7-on-your-side/waiver-commitment-wavering.

[46] Chris Jacobs, “Obamacare Takes Care from Disabled People to Subsidize Able-Bodied, Working-Age Men,” The Federalist November 18, 2016, http://thefederalist.com/2016/11/18/obamacare-takes-care-disabled-people-subsidize-able-bodied-working-age-men/.

[47] Ibid.

[48] Nicholas Horton, “Illinois’ Medicaid Expansion Enrollment Continues to Climb, Putting Vulnerable at Risk,” Illinois Policy Institute, November 1, 2016, https://www.illinoispolicy.org/illinois-medicaid-expansion-enrollment-continues-to-climb-putting-vulnerable-at-risk/.

[49] Nicholas Horton, “Hundreds on Medicaid Waiting List in Illinois Die While Waiting for Care,” Illinois Policy Institute, November 23, 2016, https://www.illinoispolicy.org/hundreds-on-medicaid-waiting-list-in-illinois-die-while-waiting-for-care-2/.

[50] Scott Gottlieb, “Medicaid Is Worse than No Coverage at All,” Wall Street Journal March 10, 2011, http://www.wsj.com/articles/SB10001424052748704758904576188280858303612.

[51] Joanna Bisgaier and Karin Rhodes, “Auditing Access to Specialty Care for Children with Public Insurance,” New England Journal of Medicine June 16, 2011, http://www.nejm.org/doi/full/10.1056/NEJMsa1013285.

[52] Stephen Zuckerman, et al., “Medicaid Physician Fees after the ACA Primary Care Fee Bump,” Urban Institute March 2017, https://www.urban.org/sites/default/files/publication/88836/2001180-medicaid-physician-fees-after-the-aca-primary-care-fee-bump_0.pdf, Table 1, p. 5.

[53] Ibid.

[54] Ibid.

[55] Kaiser Family Foundation, “Births Financed by Medicaid,” State Health Facts, https://www.kff.org/medicaid/state-indicator/births-financed-by-medicaid/?currentTimeframe=0&sortModel=%7B%22colId%22:%22%25%20Births%20Financed%20by%20Medicaid%22,%22sort%22:%22desc%22%7D.

[56] Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[57] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533.

[58] Statement by DeAnn Friedholm, Consumers Union, at Alliance for Health Reform Briefing on “Affordability and Health Reform: If We Mandate, Will They (and Can They) Pay?” November 20, 2009, http://www.allhealthpolicy.org/wp-content/uploads/2016/12/TranscriptFINAL-1685.pdf, p. 40.

[59] Vanessa Fuhrmans, “Note to Medicaid Patients: The Doctor Won’t See You,” Wall Street Journal July 19, 2007, https://www.wsj.com/articles/SB118480165648770935.

[60] Congressional Budget Office, “The Budget and Economic Outlook: 2014 to 2024,” February 2014, http://cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf, Appendix C: Labor Market Effects of the Affordable Care Act: Updated Estimates, pp. 117-27.

[61] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[62] Kenney, “Opting in to the Medicaid Expansion,” Appendix Table 1, p. 8.

[63] Cited in Nic Horton and Jonathan Ingram, “The Future of Medicaid Reform: Empowering Individuals Through Work,” Foundation for Government Accountability, November 14, 2017, https://thefga.org/wp-content/uploads/2017/11/The-Future-of-Medicaid-Reform-Empowering-Individuals-Through-Work.pdf, p. 4.

[64] Ibid.

[65] Department of Health and Human Services, notice regarding “Annual Update of the HHS Poverty Guidelines,” Federal Register January 18, 2018, https://www.gpo.gov/fdsys/pkg/FR-2018-01-18/pdf/2018-00814.pdf, , pp. 2642-44.

[66] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research, NBER Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[67] Chris Jacobs, “Putting Obamacare in a Deep Freeze,” National Review December 7, 2016, http://www.nationalreview.com/article/442820/obamacare-repeal-replace-enrollment-freeze-first-step.

[68] Kim Palmer, “Ohio Lawmakers Vote to Freeze Medicaid Expansion,” Reuters June 28, 2017, https://www.reuters.com/article/us-ohio-budget/ohio-lawmakers-vote-to-freeze-medicaid-expansion-idUSKBN19K0B8; Caleb Taylor, “House Passes Medicaid Expansion Freeze,” The Arkansas Project March 1, 2017, http://www.thearkansasproject.com/house-passes-medicaid-expansion-freeze/.

[69] Foundation for Government Accountability, “Freezing Medicaid Expansion Enrollment Will Save Taxpayers More Than Half a Trillion,” February 2017, https://thefga.org/wp-content/uploads/2017/02/MedEx-Freeze-Savings-Table.pdf.

[70] Letter by Health and Human Services Secretary Tom Price and Centers for Medicare and Medicaid Services Administrator Seema Verma to state governors regarding Medicaid reform, March 14, 2017, https://www.hhs.gov/sites/default/files/sec-price-admin-verma-ltr.pdf.

[71] See for instance Chris Jacobs, “Reforming Medicaid to Serve Wyoming Better,” Wyoming Liberty Group Wyoming Policy Review Issue 101, June 2017, https://wyliberty.org/images/PDFs/Wyoming_Policy_Review-Jacobs-Reforming_Medicaid-101.pdf, and Naomi Lopez Bauman and Lindsay Boyd, “Medicaid Waiver Toolkit,” State Policy Network, August 2017.

[72] 42 U.S.C. 1396u-8, as codified by Section 6082 of the Deficit Reduction Act of 2005, P.L. 109-171; Section 613 of the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-3; Josh Archambault and Nic Horton, “Right to Shop: The Next Big Thing in Health Care,” Forbes August 5, 2016, http://www.forbes.com/sites/theapothecary/2016/08/05/right-to-shop-the-next-big-thing-in-health-care/#6f0ebcd91f75.

[73] Steven Burd, “How Safeway is Cutting Health Care Costs,” Wall Street Journal June 12, 2009, http://www.wsj.com/articles/SB124476804026308603.

[74] Louisiana currently ranks fifth in the nation for adult obesity, with an obesity rate of 35.5%. See Trust for America’s Health, “The State of Obesity,” https://stateofobesity.org/states/la/.

[75] 42 U.S.C. 1397ee(c)(10)(B)(ii)(II) and 42 U.S.C. 1396e-1(b)(2)(B), as codified by Section 301 of CHIPRA.

[76] See for instance testimony of Patti Killingsworth, TennCare Chief of Long-Term Supports and Services, before the Commission on Long-Term Care on “What Would Strengthen Medicaid LTSS?” August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Patti-Killingsworth-Testimony.pdf. The author served as a member of the Commission.

[77] Mattie Quinn, “On Medicaid, States Won’t Take Feds’ No for an Answer,” Governing October 11, 2016, http://www.governing.com/topics/health-human-services/gov-medicaid-waivers-arizona-ohio-cms.html.

[78] Centers for Medicare and Medicaid Services, “Opportunities to Promote Work and Community Engagement Among Medicaid Beneficiaries,” State Medicaid Director letter SMD-18-002, January 11, 2018, https://www.medicaid.gov/federal-policy-guidance/downloads/smd18002.pdf

[79] Louisiana Office of the Attorney General, “Over $2 Million in Medicaid Fraud Uncovered in New Orleans,” October 16, 2017, https://www.ag.state.la.us/Article/3470/5.

[80] Jonathan Ingram, “Stop the Scam: How to Prevent Welfare Fraud in Your State,” Foundation for Government Accountability, April 2, 2015, https://thefga.org/wp-content/uploads/2015/04/Stop-The-Scam-research-paper.pdf.

[81] See for instance Government Accountability Office, “Medicaid: Additional Federal Action Needed to Further Improve Third Party Liability Efforts,” GAO Report GAO-15-208, January 2015, http://gao.gov/assets/670/668134.pdf.

[82] Testimony of Gary Alexander, former Rhode Island Secretary of Health and Human Services, on “Strengthening Medicaid Long-Term Supports and Services” before the Commission on Long Term Care, August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[83] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf.

Unwinding the Worst of Obamacare: How to End Medicaid Expansion

A PDF of this document is available on the Palmetto Promise Institute website.

As Congress prepares to consider legislation repealing and replacing Obamacare in 2017, unwinding that law’s massive expansion of Medicaid should stand at the top of the Congressional agenda. The source of most of the law’s spending, Medicaid expansion has resulted in exploding enrollment, creating state budget shortfalls that legislatures will need to remedy in 2017.

Moreover, Obamacare’s expansion of Medicaid to the able-bodied has undermined Medicaid’s original mission to provide services to the most vulnerable in society—including seniors and individuals with disabilities. The law effectively discriminates against vulnerable populations, providing states with more federal funding to cover the able-bodied than individuals with disabilities. Sadly, even as able-bodied beneficiaries have flooded into Medicaid, hundreds of thousands of individuals with disabilities continue to suffer long waits for needed care.

Congressional Republicans have put forward proposals seeking to reform Medicaid, transforming the program into a system of block grants or per capita allotments that will provide greater flexibility to states in exchange for a fixed federal spending commitment. However, such reforms are necessary—but not sufficient—in reforming the Medicaid program. First and foremost, Congress should take immediate action to unwind Obamacare’s Medicaid expansion, re-orienting the program to serve the most vulnerable populations for which it was originally designed.

 

History of Medicaid and Obamacare

As originally enacted into law in 1965, the Medicaid program provided federal matching funds to states to cover certain discrete populations, including the blind, seniors, individuals with disabilities, and needy parents. Obamacare changed the program fundamentally by expanding the program to all low-income adults; under Section 2001 of the law, all those with incomes under 138 percent of the federal poverty level (FPL) qualified for Medicaid coverage.[1] The statute as written made expansion mandatory for all states participating in Medicaid. States could decline to expand Medicaid, but in so doing, they would have had to forfeit all federal Medicaid funds, including funds for their existing aged, blind, and disabled populations.

In June 2012, the Supreme Court struck down the mandatory nature of Medicaid expansion as unconstitutionally coercive. Speaking for a seven-member majority, Chief Justice John Roberts concluded that “the threatened loss of 10 percent of a state’s overall budget [i.e., the federal share of Medicaid spending]…is economic dragooning that leaves states with no real option but to acquiesce in the Medicaid expansion.”[2] The Court left the expansion, and the rest of the law, intact, but prohibited the federal government from withholding all Medicaid funds from any states that chose not to pursue the categorical expansion to all adults with incomes under 138 percent FPL.

Because the Supreme Court ruling gave them a free choice about whether or not to embrace Obamacare’s Medicaid expansion, states—the “laboratories of democracy”—have taken different approaches. Some states, fearing that the federal government will renege on its promised high levels of funding, declined to expand. Some states passed a traditional Medicaid expansion, ratifying Obamacare’s massive new entitlement as its authors intended. Other states have utilized a system of premium assistance—also called the “private option”—that uses Medicaid dollars to subsidize private Exchange insurance coverage for individuals qualified for Medicaid under the Obamacare expansion.

Whether through the “private option” or traditional Medicaid, outcomes for states embracing Obamacare’s massive expansion of Medicaid to the able-bodied have been little different. States that have embraced Obamacare’s expansion have faced spiking enrollment and skyrocketing costs, all while perpetuating a system that encourages discrimination against the most vulnerable. Policy-makers should closely examine these cautionary tales as they look to rescind and replace Obamacare.

 

Exploding Enrollment, Skyrocketing Spending

The evidence among those states that have expended Medicaid demonstrates the massive effects on state budgets—due in large part to skyrocketing enrollment. A recent report by the Foundation for Government Accountability showed how the Medicaid rolls exploded in states that chose to expand the program under Obamacare. In a whopping 24 states that decided to expand, state Medicaid programs exceeded the highest enrollment projections:

  • Arizona predicted a maximum enrollment of 297,000; by September 2016, 397,879 had enrolled in Medicaid;
  • Arkansas predicted a maximum enrollment of 215,000; by October 2016, enrollment had reached 324,318;
  • California predicted a maximum enrollment of 910,000; by May 2016, enrollment had more than quadrupled prior maximum projections, reaching 3,842,200;
  • Colorado predicted a maximum enrollment of 187,000; by October 2016, enrollment hit 446,135;
  • Connecticut predicted a maximum enrollment of 113,000; by December 2015, 186,967 had enrolled;
  • Hawaii predicted a maximum enrollment of 35,000; by June 2015, enrollment had exceeded that projection, reaching 35,622;
  • Illinois predicted a maximum enrollment of 342,000; by April 2016, nearly double that amount—650,653—were enrolled;
  • Iowa predicted a maximum enrollment of 122,900; by February 2016, enrollment had reached 139,119;
  • Kentucky predicted a maximum enrollment of 188,000; by December 2015, enrollment more than doubled the initial expectation, reaching 439,044;
  • Maryland predicted a maximum enrollment of 143,000; by December 2015, enrollment reached 231,484;
  • Michigan predicted a maximum enrollment of 477,000; by October 2016, enrollment exceeded that projection, reaching 630,609;
  • Minnesota predicted a maximum enrollment of 141,000; by December 2015, enrollment hit 207,683;
  • Nevada predicted a maximum enrollment of 78,000; enrollment more than doubled those maximum projections, reaching 187,110 by September 2015;
  • New Hampshire predicted a maximum of enrollment of 45,500; by August 2016, enrollment reached 50,150;
  • New Jersey predicted a maximum enrollment of 300,000; twelve months after expansion began, in January 2015, enrollment totaled 532,917;
  • New Mexico predicted a maximum enrollment of 140,095; by December 2015, enrollment had reached 235,425;
  • New York predicted a maximum enrollment of 76,000; by December 2015, nearly four times as many had enrolled—a grand total of 285,564;
  • North Dakota predicted a maximum enrollment of 13,591; by March 2016, a total of 19,389 had enrolled;
  • Ohio predicted a maximum enrollment of 447,000; by August 2016, enrollment hit 714,595;
  • Oregon predicted a maximum enrollment of 245,000; by December 2015, enrollment hit 452,269;
  • Pennsylvania predicted a maximum enrollment of 531,000; by April 2016, enrollment had hit 625,970;
  • Rhode Island predicted a maximum enrollment of 39,756; in December 2015, enrollment reached 59,280;
  • Washington state predicted a maximum enrollment of 262,000; by July 2016, enrollment had more than doubled the highest enrollment projections, reaching 596,873; and
  • West Virginia predicted a maximum enrollment of 95,000; enrollment in December 2015 hit 174,999.[3]

While Medicaid is considered a counter-cyclical program—one in which enrollment typically rises during recessions, as household incomes shrink and individuals lose access to employer-sponsored coverage—Obamacare’s Medicaid expansion went into effect at a time of steady, albeit slight, economic growth. In other words, Medicaid enrollment under the Obamacare expansion could eventually exceed these figures—even as the actual enrollment numbers themselves exceeded projections prior to implementation, in some cases by several multiples.

By contrast, enrollment in health insurance Exchanges remains far below expectations set at the time of the law’s passage. Just before Obamacare passed in March 2010, the Congressional Budget Office (CBO) concluded that in 2016, the Exchanges would enroll a total of 21 million Americans.[4] For the first half of 2016, the Exchanges averaged enrollment of only 10.4 million—less than half the original CBO projection.[5]

Moreover, an analysis of Exchange enrollees shows enrollment concentrated largely among the individuals who qualify for the largest subsidies. According to an analysis conducted by the consulting firm Avalere Health, 81% of eligible individuals with income below 150 percent FPL—who are eligible for both subsidized premiums and reduced cost-sharing—have selected an Exchange plan.[6] On the other hand, only 16% of those with incomes between 300 and 400 percent FPL—who qualify for modest premium subsidies, but not reduced cost-sharing—have enrolled in Exchange coverage, while only 2% of individuals with incomes above 400 percent FPL—who do not qualify for subsidies at all—have signed up.[7] When it comes to both Medicaid expansion and Exchange coverage, the evidence suggests that only those individuals who receive free, or heavily subsidized, insurance have signed up in great numbers.

Just as enrollment for subsidized Medicaid under Obamacare dramatically exceeded expectations, so too have per-enrollee health costs for Medicaid participants. In the official 2014 report on the state of Medicaid’s finances, government actuaries acknowledged for the first time that per-enrollee costs for Obamacare’s newly eligible Medicaid enrollees ($5,488) exceeded those of previously eligible Medicaid participants ($4,914).[8] Actuaries had previously assumed that per-enrollee costs for the newly eligible population would be 30 percent lower than spending on existing populations—but the actual data suggested otherwise.[9] At the time, the actuaries believed some of the higher Medicaid spending arose because of pent-up demand—newly insured individuals requesting care for long-ignored medical conditions—a phenomenon they suggested might fade over time.[10]

But contrary to the expectations of government actuaries, costs for newly eligible beneficiaries continued to increase for a second straight year in 2015. Whereas the gap between per-enrollee costs for newly eligible beneficiaries and existing beneficiaries stood at approximately $500 in 2014, in the following year the gap grew to over $1,000—an average cost of $6,366 for every newly enrolled adult, versus $5,159 for every adult previously eligible for Medicaid.[11] As a result, the Congressional Budget Office likewise increased their estimates of per-enrollee spending on Obamacare’s Medicaid expansion—at least in the short term.[12] CBO still believes that per-enrollee spending on Obamacare’s Medicaid expansion will stabilize at lower levels over time, despite the evidence that actual costs continue to exceed prior assumptions by sizable margins.

The combination of higher-than-expected enrollment and higher-than-expected enrollee costs has created a “double whammy” for state budgets. While the federal government paid 100 percent of the cost to cover Obamacare’s Medicaid expansion population for the law’s first three years, states must contribute 5 percent of costs for the newly eligible beginning in 2017, rising to 10 percent by 2020—a share proving larger than expected, and one placing fiscal strains on states.

With the new entitlement costing much more than expected, states may have to cut other critically important spending priorities to continue funding Obamacare’s expansion of Medicaid to able-bodied adults. In Kentucky, costs for fiscal years 2017 and 2018 are now estimated at $257 million—more than double the original estimate of $107 million.[13] As a result, education, transportation, corrections, and other priorities will receive $150 million less from the state budget. Ohio’s budget for Medicaid expansion more than doubled from the $55.5 million originally projected, likewise robbing other important state spending programs.[14]

Even Democrats serving in state legislatures have expressed alarm at the rising tide of spending associated with Obamacare’s Medicaid expansion, and the other programs being cannibalized to pay for this new entitlement. In Oregon, facing a $500 million Medicaid-imposed budgetary shortfall over the next three years, Democratic state Senator Richard Devlin noted that “the only way to keep this [budget situation] manageable is to keep those costs under control, get people off Medicaid.”[15] In New Mexico, also facing pressures due to higher-than-expected enrollment, Democratic state Senator Howie Morales expressed anguish over the fiscal choices:

When you’re looking at a state budget and there are only so many dollars to go around, obviously it’s a concern. The most vulnerable of our citizens—the children, our senior citizens, our veterans, individuals with disabilities—I get concerned that those could be areas that get hit.[16]

Sen. Morales’ comments eloquently describe the plight that legislators face. States that expand Medicaid may have to cut important programs for individuals with disabilities, seniors, and the most vulnerable—to provide additional taxpayer funds for an expansion of Medicaid to able-bodied adults.

 

Undermining the Most Vulnerable

Supporters’ claims to the contrary, Medicaid expansion actually undermines principles of social justice and fairness—in which our society focuses the safety net first and foremost on those unable to provide for themselves. Expanding Medicaid under Obamacare serves only to endorse a horrifically unfair system created by the law, which effectively discriminates against individuals with disabilities—prioritizing coverage of able-bodied adults over protecting the most vulnerable in society.[17]

How does this happen in practice?

In 2013, the congressionally-appointed Commission on Long-Term Care heard testimony about the significant numbers of individuals with disabilities on waiting lists for home- and community-based services (HCBS).[18] Because coverage of HCBS—as opposed to institutional care in a nursing home—remains an optional service for state Medicaid programs, Americans in 42 states remain on lists waiting for access to home-based care.[19] More than 582,000 individuals—including nearly 350,000 with intellectual and developmental disabilities, over 155,000 aged and/or disabled individuals, over 58,000 children, more than 14,000 individuals with physical disabilities, and more than 4,000 Americans with traumatic brain injuries—remain on Medicaid waiting lists.[20] All these individuals could benefit from home-based care that would improve their quality of life, and could keep them from requiring more costly nursing home care in the future—yet they must wait in the Medicaid queue, in many cases for years on end.

Yet even as more than half a million Americans with disabilities wait for service, Obamacare prioritizes coverage of able-bodied adults over treating the most vulnerable—providing states as much as 45 cents on the dollar more to cover the able-bodied than individuals with disabilities. In 2017, the law provides a federal match for expansion populations—that is, individuals with incomes under 138 percent of the federal poverty level—of 95 percent, dipping slightly to 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and future years.[21] Conversely, states wishing to expand coverage to individuals with disabilities—to eliminate their Medicaid waiting lists—will receive only the normal Medicaid matching rate, which for the current fiscal year ranges from 50 percent to 75 percent, based on states’ relative income.[22] In other words, in 2017, states will receive at least 20 cents, and as much as 45 cents, more on the dollar for covering able-bodied adults than they will ending waiting lists for individuals with disabilities seeking care.

Sadly, some states have responded to Obamacare’s perverse incentives in predictable ways. In the few years since the law took effect, the most vulnerable in society have suffered, while able-bodied adults received a new, taxpayer-funded entitlement:

  • A recent report from Illinois found that 752 individuals with disabilities died while awaiting access to home- and community-based services since Obamacare’s expansion took effect. Ironically enough, on the very day that Illinois voted to expand Medicaid to the able-bodied early, it also cut funding for medication and services provided to special needs children.[23]
  • In Arkansas, while Gov. Asa Hutchinson pledged to cut his state’s waiting list for individuals with disabilities in half, instead it has grown by 25 percent—even as Hutchinson has embraced Medicaid expansion to the able-bodied. The individuals waiting for care include ten-year-old Skylar Overman, whose mother worries she will die before she ever receives access to the in-home care she needs.[24]
  • In Ohio, Gov. John Kasich’s administration cut Medicaid eligibility for 34,000 individuals with disabilities, even while expanding the program to the able-bodied.[25]

Any law that results in these types of inequities—the most vulnerable cast aside to hasten access to care for the able-bodied—cannot be considered compassionate or just.

The disparities and perverse incentives present in Obamacare apply to South Carolina just as much as they do in other states. The law provides massive incentives for South Carolina to expand Medicaid to these able-bodied adults—many of whom may be unemployed or under-employed—rather than ending waiting lists for individuals with disabilities. In fiscal year 2017, South Carolina will receive a 71.3 percent match from the federal government for the traditional Medicaid program—including coverage for individuals with disabilities.[26] Yet Obamacare will provide a 95 percent match should the state choose to expand Medicaid to able-bodied adults. Effectively, the law provides South Carolina with nearly 25 cents more on the dollar should the state discriminate against the most vulnerable in our society.

South Carolina has rightly rejected the effective discrimination perpetuated by Obamacare, for multiple reasons. The state has a list of 5,656 individuals with disabilities waiting to receive HCBS.[27] Providing enough funding to end the Medicaid waiting list should stand as the state’s pressing health care priority—not expanding health coverage to able-bodied adults, many of whom would exceed the income limits to qualify for Medicaid if they pursued full-time employment. The fact that Washington does not agree with South Carolina’s decision to prioritize the most vulnerable—because federal officials want the state to put the able-bodied, rather than individuals with disabilities, at the head of the Medicaid line—is a reason for Washington to change its priorities, not South Carolina.

 

Not a Panacea for Hospitals

In many states debating the future of Medicaid under Obamacare, hospital associations have served as the biggest supporters of expansion. Hospitals claim that expanding Medicaid will result in substantial improvements to their bottom line, making the difference between facilities remaining open or shutting their doors. Unfortunately, however, Medicaid expansion will not make a meaningful impact on hospitals’ bottom line.

In September 2016, staff at the non-partisan Congressional Budget Office (CBO) released a report illustrating the minimal impact of Medicaid expansion on hospitals’ profitability.[28] The paper analyzed the effects of several changes associated with Obamacare on two variables: hospitals’ aggregate profit margin nationwide, and the percentage of hospitals with negative margins. The analysis estimated these two factors in 2025, and compared hospital profitability with 2011, before most of Obamacare’s major provisions took effect.

The CBO analysis found that, under the best possible scenario, hospitals will fare no better in 2025 than they did prior to Obamacare’s major provisions taking effect—and they could fare much worse. A scenario that coupled the law’s Medicare payment reductions with its coverage expansions yielded a best-case scenario similar to the status quo ante: about one quarter of hospitals with negative profit margins (26% in 2025, versus 27% in 2011), and an aggregate margin of 6.0% in both cases.[29] However, should hospitals fail to achieve the productivity gains contemplated under Obamacare, margins will fall significantly—with as many as half of all hospitals having a negative profit margin by 2025, and the industry as a whole barely profitable.[30] Thanks to Obamacare, hospitals will struggle mightily just to tread water—and many may end up sinking financially.

The CBO paper also specifically examined whether all states expanding Medicaid would make a material impact on its analysis. Would a broader expansion of insurance coverage overcome the damaging fiscal effects of Obamacare’s Medicare payment reductions? CBO concluded that broader Medicaid expansion would have a minor impact:

Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries…is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.[31]

Despite claims from some hospital executives that Medicaid expansion represents a make-or-break financial decision for their industry, non-partisan experts disagree.

The real problem for hospitals lies elsewhere within Obamacare, in the Medicare productivity adjustments that will affect hospitals each and every year. The Medicare actuary, along with other non-partisan experts, has made annual warnings every year since the law’s passage concluding the productivity reductions are unsustainable, and will make most hospitals, skilled nursing facilities, and home health agencies unprofitable in the coming decades.[32] The September CBO report confirms, and further validates, the Medicare actuary’s work highlighting the unrealistic nature of the payment reductions used to fund Obamacare.

As has been explained elsewhere, hospitals made a terribly unwise bargain when negotiating behind closed doors with the Obama Administration: They agreed to annual reductions in their Medicare payments forever in exchange for a one-time increase in the number of insured Americans.[33] Hospital lobbyists themselves know full well that the agreement they negotiated will ultimately destroy the industry.

At a televised event in August 2010, months after the law passed, Chip Kahn—the CEO of the Federation of American Hospitals, which represents the for-profit hospital industry—admitted his knowledge of Obamacare’s long-term effects on the hospital sector.[34] Then-Medicare actuary Richard Foster asked Kahn why hospitals agreed to what appears on its face to be a bad deal: Perpetual Medicare payment reductions in exchange for a one-time increase in insured Americans. Mr. Kahn first claimed that “from the hospital industry standpoint, there never was any kind of illusion that this was some kind of standard that we could meet in terms of improving quality”—even though the law itself assumes that hospitals will become more productive year-over-year, and reduces their Medicare payments accordingly.[35] When pressed on this issue—what will happen to the hospital industry when these year-on-year reductions cascade over time—Mr. Kahn eventually threw up his hands: “Now, you could say, did you make a bad deal? And fortunately, I don’t think I’ll probably be working after 2020. [Laughter.]…I’m glad my contract only goes another six years. [Laughter.]”[36]

The candid comments by the head of the Federation of American Hospitals months after the law passed say it all. In endorsing Obamacare, hospital lobbyists knew they were agreeing to provisions that would decimate their industry in the long run—but didn’t care, because those devastating provisions would only take effect well after they had retired. These incredibly cynical comments provide two additional reasons for legislators not to embrace Medicaid expansion. As both the CBO analysis and Mr. Kahn’s comments indicate, expanding Medicaid will not solve hospitals’ financial difficulties, which arise from a self-inflicted blow—namely, agreeing to massive Medicare payment reductions that overwhelm the comparatively small revenue gain associated with Medicaid expansion. But while expanding Medicaid will not save hospitals in the long term, it will serve to sink state budgets, leaving them with the worst of both worlds on the fiscal front.

 

Work Disincentives

Supporters of Medicaid expansion claim that the additional federal funds generated by expansion have created jobs and economic growth. In reality, expanding Medicaid has only created additional disincentives for work, according to non-partisan economic experts.

Many studies claiming Medicaid expansion will create jobs represent one-sided—and therefore highly biased—analysis, examining the federal revenue flowing into states as a result of expansion without studying the impact of the tax increases necessary to generate said revenue. However, many studies—including a seminal analysis undertaken by President Obama’s former chief economic adviser, Christina Romer—find that the economic damage—in technical terms, the deadweight losses associated with Obamacare’s tax increases—will vastly outweigh any job gains associated with Medicaid expansion.[37]

Ironically, one of the architects of Obamacare disputes the economic theories put forward by Medicaid expansion proponents. In a New York Times op-ed, former Obama Administration advisor Zeke Emanuel stated that “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”[38] Likewise, two Harvard economists note that viewing the health system as a jobs program will ultimately increase spending and raise health costs, limiting access for the poor: “Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price.”[39]

Rather than creating jobs, the Congressional Budget Office (CBO) believes that Medicaid expansion will discourage work. In part of its 2014 update on Obamacare’s effects on the labor supply—in which CBO asserted that the law as a whole will reduce the supply of labor provided by the equivalent of 2.5 million jobs by 2024—the budget office noted that “expanded Medicaid eligibility under [the law] will, on balance, reduce incentives to work.”[40] For instance, individuals who exceed Medicaid eligibility limits by even one dollar could face hundreds, or thousands, of dollars in premiums and co-payments to obtain subsidized Exchange coverage; such workers will likely work fewer hours to keep their income below eligibility caps.

Medicaid expansion will discourage work precisely because most of the participants in the expansion are able-bodied adults of working age. According to analysis conducted by the liberal-leaning Urban Institute, nearly nine in ten individuals (88.1%) who would benefit from Medicaid expansion in South Carolina represent adults without dependent children.[41] Moreover, the vast majority of South Carolinians to be covered under expansion would come within the ages of 19-55—prime working ages for most Americans. More than one-quarter (27.6%) of would-be beneficiaries of expansion are aged 19-24, with a further 21.9% aged 25-34, and more than one-third (35.5%) aged 35-54.[42]

The Urban Institute data strongly suggest that the vast majority of the potential beneficiaries from Medicaid expansion in South Carolina constitute individuals who could be in work, or preparing for work. Indeed, many South Carolinians working full-time would generate enough income not to qualify for benefits under Medicaid expansion. In 2016, 138 percent of the federal poverty level represents an income of just under $16,400 for an individual.[43] A South Carolinian working a full-time job (40 hours per week, 50 weeks per year) at a wage of $8.25 per hour would earn $16,500 annually, thereby exceeding the limit to qualify for Medicaid benefits.

However, CBO believes the Medicaid “benefit cliff” will discourage individuals from working, precisely because they wish to remain eligible for benefits. A December 2015 CBO paper quantified this impact: Analysts concluded that Obamacare’s Medicaid expansion will reduce beneficiaries’ labor force participation by about 4 percent, by “creat[ing] a tax on additional earnings for those considering job changes” that would raise their income above the threshold for eligibility.[44]

While Obamacare’s massive expansion of Medicaid to the able-bodied discourages work and will reduce the labor supply, unwinding the expansion will produce salutary economic effects. Tennessee’s decision to roll back a Medicaid coverage expansion in 2005 encouraged more individuals to join the labor force, in order to obtain employer-sponsored health coverage.[45] If states wish to grow their economies and encourage work, unwinding Obamacare provides a better approach to achieving those objectives.

“Private Option” Results in Greater Public Spending

While some supporters of Medicaid expansion believe that the so-called “private option”—using Medicaid dollars to purchase Exchange coverage for beneficiaries—represents an efficient use of taxpayer dollars, evidence suggests otherwise. In 2012, immediately following the Supreme Court ruling that made Medicaid expansion optional for states, the Congressional Budget Office (CBO) considered expansion through health insurance Exchanges significantly more costly than expansion through traditional Medicaid:

For the average person who does not enroll in Medicaid as a result of the [Supreme] Court’s decision and enrolls in an Exchange instead, estimated federal spending will rise by roughly $3,000 in 2022—the difference between estimated additional Exchange [premium and cost-sharing] subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000.[46]

Providing Medicaid beneficiaries private coverage through the insurance Exchanges could cost approximately 50% more, according to CBO’s 2012 estimate—a concern other non-partisan experts have flagged.

Government auditors have raised significant concerns that the “private option” waiver method of providing coverage improperly wastes taxpayer funds. In an August 2014 report, the Government Accountability Office (GAO) noted that, when approving the first instance of this “private option” model in Arkansas, the federal Department of Health and Human Services (HHS) “did not ensure budget neutrality,” which is required under federal law, in three key areas:

  • “HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs—significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program—without requesting any data to support the state’s assumptions.” GAO concluded that these higher payment assumptions increased the program’s budget caps by $778 million—or nearly 20% of the approximately $4.0 billion, three-year budget for the program.
  • “HHS gave Arkansas the flexibility to adjust the spending limit if actual costs under the demonstration proved higher than expected…one which HHS has not provided in the past.”
  • “HHS in effect waived its cost-effectiveness requirement that providing premium assistance to purchase individual coverage on the private market prove comparable to the cost of providing direct coverage under the state’s Medicaid plan—further increasing the risk that the demonstration will not be budget-neutral.”[47]

The GAO report illustrates how, in order to ensure that Arkansas endorsed Obamacare’s massive new entitlement, federal officials raised the budgetary caps required under law so high that they became nearly meaningless—and then gave Arkansas officials discretion to raise them even higher. Such actions represent a disservice to taxpayers in all states, including South Carolina. The GAO report demonstrates why unwinding the law’s Medicaid expansion—in all its forms, including the “private option”—represents the wisest way to protect taxpayer funds.

 

How to Unwind Obamacare’s Medicaid Expansion: Congress

As Congress considers legislation to repeal Obamacare in January 2017, it should embark on a three-step approach to unwind the law’s massive Medicaid expansion:

  • First, Congress should take action to freeze enrollment in the Medicaid expansion immediately after enactment of the repeal bill. Freezing enrollment will hold those currently on Medicaid harmless, while beginning a process to roll back the higher levels of spending associated with Medicaid expansion.
  • Second, Congress should roll back the enhanced federal match for expansion populations, consistent with budget reconciliation legislation that Congress passed, and President Obama vetoed, during the 114th Congress.[48] Ending the enhanced federal match by 2019 will eliminate the discrimination inherent in Obamacare—whereby states receive a higher match to cover able-bodied adults than individuals with disabilities.
  • Third, Congress and states should reorient Medicaid towards the vulnerable populations for which the program was originally designed. Added flexibility from Congress, and the incoming Trump Administration, will allow states to achieve additional savings in their Medicaid programs—savings that will permit states to achieve other important priorities, like reducing waiting lists for individuals with disabilities seeking access to home-based care.

While proposals to transform Medicaid into a block grant or per capita allotment would give states welcome flexibility from Washington’s dictates, lawmakers must focus first on unwinding Obamacare’s Medicaid expansion—and eliminating distortions to the program caused by same. Any block grant or Medicaid funding formula that uses the years 2014 through 2017 as a “base year” will perpetuate the inequities caused by the Obamacare expansion—the massive enrollment of able-bodied adults, and the increased spending by states that used the prospect of a 100% federal match to increase Medicaid reimbursements. States that made the policy choice to keep Medicaid focused on the most vulnerable in society should not be penalized by a block grant formula that rewards those states who embraced Obamacare’s expansion of Medicaid to the able-bodied.

 

How to Unwind Obamacare’s Medicaid Expansion: The States

The states also have a role, albeit a limited one, in the undoing of Obamacare’s massive Medicaid expansion. As state legislatures reconvene, they can:

  • Continue to resist calls for expanding Medicaid to able-bodied adults. No state is expected to expand or choose a “private option” scheme in their new legislative terms, but fiscally responsible legislators should nevertheless arm themselves with the facts of this paper and prepare for misguided calls for subjecting more states to the excessive costs of Medicaid expansion.
  • Pass resolutions memorializing Congress to resist attempts to retain any of the core principles of Obamacare, including Medicaid expansion, as having a negative impact on state budgets and state policies. Both with respect to the costs of Medicaid expansion, and with respect to skyrocketing premiums in health insurance Exchanges, states and consumers alike are begging for relief from Obamacare. If enough states call for a top to bottom repeal and replace of Obamacare, including Medicaid expansion, consumers will win.
  • Prepare for possible common sense solutions, formerly known as “Obamacare off-ramps,” that will insure freedom for the insured without bullying businesses or individuals into plans they don’t like and doctors they don’t want. Members of both the United States House and Senate previously introduced such plans in the last Congress.[49] The new Trump Department of Health & Human Services, and specifically the Centers for Medicare and Medicaid Services (CMS), should provide guidance on blanket waivers designed to maximize flexibility for state Medicaid programs immediately upon taking office.[50]

 

Need for Reform

Even prior to Obamacare, Medicaid stood as a program in need of significant reform. The program has nearly tripled as a share of state budgets since 1987, yet provides beneficiaries with care of questionable quality.[51] Results from Oregon suggest that newly enrolled individuals in Medicaid used the emergency room at rates 40 percent higher than the uninsured—a disparity that persisted over time—yet did not achieve measurable improvement in their physical health outcomes.[52] With high (and growing) levels of spending coupled with subpar outcomes, states should use the flexibility promised from the Trump Administration to rethink their approach to Medicaid.

However, such efforts should come only after Congress has first backed down Obamacare’s massive expansion of Medicaid to the able-bodied. Restoring Medicaid as a safety net program for the most vulnerable in society would unwind more than $1 trillion in projected spending over the coming decade providing coverage to the able-bodied.[53] Just as important, it would remove the inequities created by Obamacare, and put all states on a level playing field for the reformed Medicaid program that should follow.

 

[1] Patient Protection and Affordable Care Act, Public Law 111-148, as amended by the Health Care and Education Reconciliation Act, Public Law 111-152, http://housedocs.house.gov/energycommerce/ppacacon.pdf, Section 2001(a).

[2] NFIB v. Sebelius, 567 U.S. __ (2012).

[3] Jonathan Ingram and Nicholas Horton, “Obamacare Expansion Enrollment Is Shattering Projections,” Foundation for Government Accountability, November 16, 2016, https://thefga.org/download/ObamaCare-Expansion-is-Shattering-Projections.PDF, p. 5.

[4] Congressional Budget Office, estimate of H.R. 4872, Health Care and Education Reconciliation Act, in concert with H.R. 3590, Patient Protection and Affordable Care Act, March 20, 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/amendreconprop.pdf, Table 4, p. 21.

[5] Centers for Medicare and Medicaid Services, “First Half of 2016 Effectuated Enrollment Snapshot,” October 19, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[6] Avalere Health, “The State of Exchanges: A Review of Trends and Opportunities to Grow and Stabilize the Market,” report funded by Aetna, October 2016, http://go.avalere.com/acton/attachment/12909/f-0352/1/-/-/-/-/20161005_Avalere_State%20of%20Exchanges_Final_.pdf, Figure 3, p. 6.

[7] Ibid.

[8] The numbers in parentheses represent revised 2014 data cited in the 2015 actuarial report, based on actual spending patterns. The numbers initially cited in the 2014 actuarial report were $5,514 for newly eligible adults, and $4,650 for previously eligible adults.

[9] Centers for Medicare and Medicaid Services Office of the Actuary, “2014 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2014, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2014.pdf, pp. 36-37.

[10] Ibid.

[11] Centers for Medicare and Medicaid Services Office of the Actuary, “2015 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2015, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2015.pdf, p. 27.

[12] For an analysis of the ways that the Medicare actuary’s office and CBO have changed their baseline projections of Medicaid spending over time, see Brian Blase, “Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems,” Mercatus Center, September 2016, https://www.mercatus.org/system/files/mercatus-blase-medicaid-structural-problems-v1.pdf, pp. 15-20.

[13] Christina Cassidy, “Rising Cost of Medicaid Expansion is Unnerving Some States,” Associated Press October 5, 2016, http://bigstory.ap.org/article/4219bc875f114b938d38766c5321331a/rising-cost-medicaid-expansion-unnerving-some-states.

[14] Ibid.

[15] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[16] Ibid.

[17] See also Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Citizenship, Marriage, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[18] The author served as an appointee to the commission, whose work can be found at www.ltccommission.org.

[19] Kaiser Family Foundation, “Waiting List Enrollment for Medicaid Section 1915(c) Home- and Community-Based Services Waivers,” Kaiser Commission on Medicaid and the Uninsured 2015 survey, http://kff.org/health-reform/state-indicator/waiting-lists-for-hcbs-waivers/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

[20] Ibid.

[21] Section 2001(a) of PPACA.

[22] “Federal Financial Participation in State Assistance Expenditures,” Federal Register November 25, 2015, pp. 73781-82, Table 1, https://aspe.hhs.gov/sites/default/files/pdf/167966/FMAP17.pdf.

[23] Nicholas Horton, “Hundreds on Medicaid Waiting List in Illinois Die While Waiting for Care,” Illinois Policy November 23, 2016, https://www.illinoispolicy.org/hundreds-on-medicaid-waiting-list-in-illinois-die-while-waiting-for-care-2/.

[24] Jason Pederson, “Waiver Commitment Wavering,” KATV June 15, 2016, http://katv.com/community/7-on-your-side/waiver-commitment-wavering.

[25] Chris Jacobs, “Obamacare Takes Care from Disabled People to Subsidize Able-Bodied, Working-Age Men,” The Federalist November 18, 2016, http://thefederalist.com/2016/11/18/obamacare-takes-care-disabled-people-subsidize-able-bodied-working-age-men/.

[26] “Federal Financial Participation,” Table 1.

[27] Kaiser Family Foundation, “Waiting List Enrollment.”

[28] Tamara Hayford et al., “Projecting Hospitals’ Profit Margins Using Several Alternative Scenarios,” Congressional Budget Office Working Paper 2016-04, September 2016, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51919-Hospital-Margins_WP.pdf.

[29] Ibid., Table 6, p. 29.

[30] Ibid.

[31] Ibid., p. 34.

[32] For the most recent version, see John Shatto and Kent Clemens, “Projected Medicare Expenditures under an Illustrative Alternative Scenario,” Office of the Actuary, Centers for Medicare and Medicaid Services, June 22, 2016, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2016TRAlternativeScenario.pdf.

[33] Chris Jacobs, “The Report Every State Legislator Should Read,” National Review September 27, 2016, http://www.nationalreview.com/article/440411/obamacare-medicaid-expansion-hospitals-wont-benefit-says-cbo.

[34] American Enterprise Institute, “Medicare after Reform: the 2010 Medicare Trustees Report,” August 6, 2010, video available through C-SPAN at https://www.c-span.org/video/?c4402939/chip-kahn.

[35] Ibid.

[36] Ibid.

[37] Chris Conover, “Will Medicaid Expansion Create Jobs?” Forbes February 25, 2013, http://www.forbes.com/sites/chrisconover/2013/02/25/will-medicaid-expansion-create-jobs/#73893e3e3d25.

[38] Ezekiel Emanuel, “We Can Be Healthy and Rich,” New York Times February 2, 2013, http://opinionator.blogs.nytimes.com/2013/02/02/we-can-be-healthy-and-rich/.

[39] Kate Baicker and Amitabh Chandra, “The Health Care Jobs Fallacy,” New England Journal of Medicine June 28, 2012, http://www.nejm.org/doi/full/10.1056/NEJMp1204891.

[40] Congressional Budget Office, “The Budget and Economic Outlook: 2014 to 2024,” February 2014, http://cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf, Appendix C: Labor Market Effects of the Affordable Care Act: Updated Estimates, pp. 117-27.

[41] Genevieve M. Kenney et al., “Opting in to the Medicaid Expansion Under the ACA: Who Are the Uninsured Adults Who Could Gain Health Insurance Coverage?” Urban Institute, August 2012, p. 9, Appendix Table 2, http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412630-Opting-in-to-the-Medicaid-Expansion-under-the-ACA.PDF.

[42] Ibid., p. 8, Appendix Table 1.

[43] “Annual Update of the HHS Poverty Guidelines,” Federal Register January 25, 2016, pp. 4036-37, https://www.gpo.gov/fdsys/pkg/FR-2016-01-25/pdf/2016-01450.pdf.

[44] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[45] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research, NBER Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[46] Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012, https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/43472-07-24-2012-CoverageEstimates.pdf, p. 4.

[47] Government Accountability Office, “Medicaid Demonstrations: HHS’ Approval Process for Arkansas’ Medicaid Waiver Raises Cost Concerns,” Report GAO-14-689R, August 8, 2014, http://www.gao.gov/assets/670/665265.pdf, p. 3.

[48] Section 207 of H.R. 3762, Restoring Americans’ Health Care Freedom Reconciliation Act of 2015.

[49] Palmetto Promise Institute, “King v. Burwell: The Obamacare Off-Ramp?” Health Care Fast Facts May 2015, http://www.kbcsandbox4.com/palmetto/wp-content/uploads/2015/05/King-v-Burwell-Fast-Facts.pdf.

[50] Chris Jacobs, “Reforming Medicaid, Beginning on Day One,” Chris Jacobs on Health Care December 12, 2016, http://www.chrisjacobshc.com/2016/12/12/reforming-medicaid-beginning-on-day-one/.

[51] National Association of State Budget Officers, Fiscal Survey of States: Spring 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Reports/Spring%202016%20Fiscal%20Survey%20of%20States-S.pdf, p. 63; National Association of State Budget Officers, 1996 State Expenditure Report, April 1997, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1996.PDF, Table 3, p. 11.

[52] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533; Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[53] Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016, https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf, Table 3, p. 5.