California’s Medicaid Conundrum

Two recent articles on California’s fiscal situation illustrate the mixed messages coming from some states, which face rising costs from expanding Medicaid under the Affordable Care Act even as they grapple with a reduced, and frequently fickle, tax base.

On Tuesday, the Los Angeles Times highlighted the growing cost of Medicaid in the Golden State—namely, a $1.2 billion hole in the state’s budget.  While California’s Medicaid enrollment exceeded projections by 1.4 million, many of those new enrollees had already been eligible for the program. The federal government provides states a 100% Medicaid match through 2016, but that’s only for those individuals newly eligible under the 2010 health-care law; if individuals who had already been eligible for but not enrolled in Medicaid come out of the woodwork, states will pay a portion of those costs. In 2012, the Department of Health and Human Services estimated that states would pay an average of 43% of those enrollees’ Medicaid costs in this fiscal year.

On Thursday, The Wall Street Journal reported on the “income tax yo-yo” California and many other states are facing. A recent Rockefeller Institute report found that state revenue declined in the first quarter of 2014, and many states are reporting shrinking surpluses or projected deficits. Meanwhile, economists at the Federal Reserve Bank of Chicago have noted the increasingly uncertain nature of state tax collections.

Some states opted to expand Medicaid under the health-care law, raising costs and budgetary pressures at a time of volatile tax revenue. In some cases, the result has been cognitive dissonance. California Gov. Jerry Brown was quoted in Thursday’s Journal saying: “We can’t spend at the peak of the revenue cycle—we need to save that money, as much of it as we can.”  But two days earlier, Mr. Brown had expressed pride in the “huge social commitment” that health-care expansion represented in his state—even as it caused a billion-dollar overspend.

Ultimately, states that expand Medicaid could face pressure to cut other important services, whether health-related or in areas such as corrections or education. Recent trends have moved toward reductions because when an irresistible force such as a shrinking tax base meets an immovable object—the rising costs from expanding Medicaid—something has to give.

This post was originally published at the Wall Street Journal Think Tank blog.

Even Supporters Fear Obamacare’s Impact on States

An eye-opening article in yesterday’s Los Angeles Times shows the dilemma states are facing as they begin to make crucial policy and budgetary choices surrounding Obamacare.  The article notes that the law “takes states into uncharted territory” as they attempt to estimate the fiscal impact of Obamacare’s massive Medicaid expansion:

California, which plans to expand coverage to hundreds of thousands of people when the law takes effect in 2014, faces myriad unknowns.  The Brown administration will try to estimate the cost of vastly more health coverage in the budget plan it unveils next month, but experts warn that its numbers could be way off.  Officials don’t know exactly how many Californians will sign up for Medi-Cal, the public health insurance program for the poor.  Computing the cost of care for each of them is also guesswork.  And California is waiting for key rulings from federal regulators that could have a major effect on the final price tag, perhaps in the hundreds of millions of dollars….

Unanticipated costs associated with the healthcare changes could undermine California’s efforts to improve its standing on Wall Street and keep the economy moving.  They could force fresh cuts in services if they consume much more of the state budget than Brown is able to approximate….

Gov. Jerry Brown expressed a new concern in an interview last week.  He said recent signs from Washington suggest the federal government may not pay as much of the costs associated with the new law as originally promised, sticking states with a larger share of the bill.  “As the guardian of the public purse here, I have to watch very closely what may come out of Washington,” the governor said.  “So we’re going to move carefully.  We want to make sure the federal government is on board.”

These statements of caution and concern come from a major supporter of the law.  And little wonder: Over the past two fiscal years, states had to close a combined $146.3 billion in budget gaps – yet Obamacare is about to impose new unfunded mandates on states of at least $118 billion.  Both the numbers, and the diffident attitude from the governor of the largest state in the union, should serve as a cautionary tale for states contemplating the massive fiscal hit Obamacare will impose on their budgets.

Single Payer Dystopia

Late last week, Los Angeles Times columnist David Lazarus wrote an article about an impending piece of legislation to be introduced by Rep. Jim McDermott.  According to the column, the bill would allow states to receive federal Medicare and Medicaid funds to establish state-based single-payer health insurance systems.  The article provides background on California’s numerous prior attempts to establish single-payer health care in the state, and quotes liberal advocates as saying the McDermott legislation could finally result in the single-payer dreams becoming reality.

Unfortunately, there are a few flaws in this logic.  Such as California’s $16 billion budget deficit, which has prompted Gov. Jerry Brown to ask voters to approve massive tax increases.  And there’s also this unwelcome element:  “A draft of McDermott’s bill says that to receive federal funds, states would have to offer a health care plan with the same benefits as the most popular plan available to federal government employees.”  That plan would be the Blue Cross Blue Shield standard option plan, which in 2010 cost a whopping $6,458.88 for a single person annually – 34% more than the average single premium for employer-provided health insurance in California that year.

To sum up:  At a time when California still faces double-digit unemployment and massive budget shortfalls, liberals think the state can use existing federal dollars to cover 7 million uninsured, provide 34% richer benefits to those with insurance, and save the state money in the process.  Some might argue that position is taking “California Dreamin’” to an extreme.  Because given economic malaise, budget constraints, and a platinum-plated package of mandated benefits, the single-payer health utopia liberals seek would, for millions of California residents, quickly turn into a dystopia.  Or even a Fruitopia.

Faces of Health “Reform:” Who Will Be Hurt by Obamacare?

Small businesses

  • According to the New York Times,[i] the President promised small business owner Patty Briguglio, that “the tax credits would more than offset any tax increases.”  Patty has 19 employees now and gives them an allowance to purchase health insurance.  If she does well and her business expands to 50 or more employees, she will have to pay a $2,000 per employee tax if even one of her employees gets a subsidy in the exchange, even if she continues to provide this allowance.
  • Other small business owners such as a trucking company that employs more 150 workers and offers affordable health insurance today may not be able to afford government-approved health insurance in 2014 and will drop coverage and be forced to pay the mandate tax.
  • This tax will raise $52 billion to help pay for this bill.[ii]
  • For two years, small businesses could receive a complicated and temporary credit to cover 50 percent of the premium costs of their workers.  This credit is no longer available after 2016, but business owners like Patty would face the fine in perpetuity.
  • CBO has said that costs associated with the employer mandate will be shifted to workers in the form of lower wages, fewer jobs, or more part-time jobs at the expense of full-time jobs.[iii]

Seniors

  • The single group that pays the most for this health care bill is America’s senior citizens, who will face $529 billion in cuts to the Medicare program.
  • These cuts are being made to finance an expansion of Medicaid and a brand new entitlement that goes directly from the federal treasury to insurance companies to help people buy mandated health insurance.
  • $120 billion in Medicare Advantage cuts will affect nearly 11 million seniors and cause enrollment to decline by 33 percent.[iv]
  • According to CBO, eliminating the Part D coverage gap, or “doughnut hole,” would cause a 50 percent spike in average Part D premiums.[v]

Wounded Warriors

  • The bill imposes a 2.3 percent tax on medical devices with a  narrow list of exceptions.
  • Wheelchairs, crutches, hospital beds, MRI machines, and a long list of other devices would be taxed, resulting in job losses for manufacturers and higher costs for all Americans who use these devices.
  • No exceptions were provided for America’s veterans, who have sacraficed honorably.  The costs of treating these wounded warriors will go up as all medical devices will be more expensive.
  • American vets are also provided no assurance that their current coverage qualifies as government-approved coverage, meaning they could be forced to give up the coverage they currently have to comply with the mandate.

Children

  • A picture of little Madeline was taken last year at a protest in Washington, D.C., when total gross debt was more than $38,000 per American.
  • If you take out the gimmicks used to hide the true cost of health reform, the bill adds another $618 billion to the deficit over its first 10 years.[vi]
  • This debt will be financed by foreign nations and paid for by future generations of Americans.
  • Madeline already owes $38,375 of the national debt, but if the President’s FY11 budget is enacted, by the time she is a teenager she will owe more than $70,000 to China and other creditors.[vii]

Americans with insurance

  • Americans who are currently insured will pay higher indirect taxes on medical devices, pharmaceuticals, and their health insurance plans.
  • The bill imposes a 40 percent excise tax on family health insurance plans that cost more than $27,500 a year.
  • CBO shows that premiums for Americans in the large group market will continue to rise $1,000 a year under the health care bill, no different than the estimate without reform.[viii]

Families

  • Because the subsidy level for a two-person family is less than twice the level for a single person, getting married will mean that two people who previously received a subsidy will lose that subsidy simply by getting married.
  • Two individuals earning $130,000 separately would face higher taxes on their income and savings if they got married because their combined income would be more than the $250,000 family threshold for the investment tax.
  • These perverse, anti-family incentives punish people for getting married.
  • This bill adds new indirect taxes on more than 73 million households earning less than $200,000 a year, raising the prices of insurance, pharmaceuticals, and medical devices.[ix]

States

  • By expanding eligibility standards for Medicaid, health reform imposes billions in new costs for states, which will be forced to expand their already over-burdened state Medicaid program.  Tennessee Democratic Governor Phil Bredesen has called this the “mother of all unfunded mandates,”[x] and Democratic Arkansas Governor Mike Beebe said he would have voted against the bill because of its effect on states.[xi]
  • The head of Washington state’s Medicaid program believes that states facing severe financial distress may say, “I have to get out of the Medicaid program altogether.”[xii]
  • California’s Governor said he believes health reform will impose $3 billion in new costs on the state.[xiii]
  • Backroom deals to benefit certain states like Connecticut will be paid for by taxpayers in other states.

Students

  • In order to finance their unpopular health care proposals, Democrats have staged a government takeover of student loans that would turn the U.S. Department of Education into one of the nation’s largest banks.
  • Approximately $9 billion in education savings from this government takeover will be diverted from students to help pay for the cost of the Obama Administration’s health care proposal.[xiv]
  • Health care reform is being financed on the backs of American students.

Young people

  • Insurance carriers will not be able to vary premiums by age by more than 3 to 1 (i.e., charge older individuals no more than three times what younger, lower-risk applicants would pay).  While this concept sounds appealing, it will push up prices for young people in order to cut premium rates for older Americans.
  • Average premiums for individuals aged 18-24 are currently nearly one-quarter the average premiums paid by individuals aged 60-64.[xv]  As a result, the very narrow age variations allowed under the new law will function as a significant transfer of wealth from younger to older Americans—and by raising premiums for young and healthy individuals, may discourage their purchase of insurance.
  • Harvard Professor Kate Baicker’s analysis demonstrates that at least 5.5 million low-wage workers would be “at substantial risk of unemployment” due to new mandates on employers—and that workers under age 35 are 50 percent more likely to be threatened with job loss than their older counterparts.[xvi]

 

[i] “Obama Meets the Businesswoman: The Story Behind the Photo,” New York Times, July 30, 2009, http://boss.blogs.nytimes.com/2009/07/30/mr-prez-meets-ms-biz-the-story-behind-the-photo/

[ii] CBO, http://cbo.gov/ftpdocs/113xx/doc11379/Manager%27sAmendmenttoReconciliationProposal.pdf

[iii] CBO, Effects of Changes to Health Insurance System to the Labor Market, http://cbo.gov/ftpdocs/104xx/doc10435/07-13-HealthCareAndLaborMarkets.pdf

[iv] “Brief Summaries of Medicare and Medicaid,” November 1, 2009, Centers for Medicare and Medicaid Services, http://www.cms.hhs.gov/MedicareProgramRatesStats/downloads/MedicareMedicaidSummaries2009.pdf

[v] CBO, Budget Health Options, http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf

[vi] Senate Budget Committee, http://budget.senate.gov/republican/pressarchive/2010-03-23BudgetPerspective.pdf

[vii] President’s Budget request, FY11.

[viii] CBO letter to Evan Bayh, November 30, 2009, http://cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf

[ix] Senate Finance Committee analysis of Joint Committee on Taxation distributional data.

[x] “Governors Fear Medicaid Costs in Health Plan,” New York Times, July 19, 2009, http://www.nytimes.com/2009/07/20/health/policy/20health.html?scp=2&sq=medicaid&st=cse

[xi] “Beebe: Wouldn’t have supported health reform overhaul because of cost to the state,” KFSM.com, March 22, 2010, http://www.kfsm.com/news/sns-ap-ar–healthcare-beebe,0,4226531.story

[xii] “Governor’s Fear Added Costs in Health Care Overhaul,” New York Times, August 6, 2009, http://www.nytimes.com/2009/08/07/business/07medicaid.html?scp=1&sq=krauss&st=cse

[xiii] “States Fight Medicaid Expansion,” Wall Street Journal, June 23, 2009, http://online.wsj.com/article/SB124571731912339159.html

[xiv] Congressional Budget Office, March 20, 2010, http://cbo.gov/ftpdocs/113xx/doc11379/Manager%27sAmendmenttoReconciliationProposal.pdf

[xv] America’s Health Insurance Plans, survey of individual health insurance products, December 2007, http://www.ahipresearch.org/pdfs/Individual_Market_Survey_December_2007.pdf, Table 2, p. 7.

[xvi] Kate Baicker and Helen Levy, “Employer Health Insurance Mandates and the Risk of Unemployment,” NBER Working Paper 13528, October 2007, http://www.nber.org/papers/w13528.pdf.