Do’s and Don’ts of Improving State Medicaid Programs

A version of this document is available on the Galen Institute website.

Across the country, state legislatures are considering whether and how to implement Obamacare’s Medicaid expansion.  Ten simple reasons illustrate why states should reject Obamacare’s government-centric expansion and instead develop their own innovative solutions.

Obamacare’s Medicaid expansion harms states

  • Medicaid is “Not a Jobs Program:”  Former Obama administration official Zeke Emanuel wrote in a New York Times op-ed that hospitals and other health providers should not view health programs as a never-ending government jobs program.  Research suggests tax increases needed to fund Medicaid expansion will destroy jobs, not create them.
  • Medicaid “Not Real Insurance:”  Medicaid’s problems with poor beneficiary access to physicians have been well documented.  One Michigan beneficiary said it best: “You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we would call and come in at the drop of a hat.”
  • Not True Flexibility:  Guidance recently issued by the Obama administration shows continued unwillingness to contemplate flexibility in Medicaid.  Washington continues to place limits on even modest cost-sharing for recipients to incentivize healthy behaviors.
  • “Bait and Switch” from Washington, Part I Given the significant Medicaid spending cuts President Obama himself previously proposed to rein in massive federal deficits, the high federal Medicaid matching rates included in Obamacare are unlikely to remain.
  • “Bait and Switch” from Washington, Part II:  States with premium assistance demonstrations now must ask permission from Washington to extend them beyond 2016.  HHS has shown little flexibility for states, and it could show even less after millions more Americans are enrolled in taxpayer-funded benefits.

True Reform: What states should do instead

  • Customized Beneficiary Services:  Providing beneficiaries with a choice of coverage options can provide plans an incentive to tailor their benefit packages to best meet individual needs.  Similar incentives promoting competition in the Medicare Part D drug benefit helped keep program cost more than 40% below estimates.
  • Coordinated and Preventive Care:  Reform programs in states as varied as Indiana, Rhode Island, and Florida focus on individualized, coordinated services to beneficiaries – an improvement on the top-down, uncoordinated care model of old.  In many cases, preventive care interventions for Medicaid recipients suffering from chronic conditions can ultimately save money.
  • Personal responsibility:  Cost-sharing can be an appropriate incentive to encourage recipients to take ownership of their health and discourage costly practices, such as ER visits for routine care.  More than two-thirds of participants in the Hoosier State’s Healthy Indiana Plan consider their cost-sharing levels appropriate, proving that families of modest means are willing and able to provide some financial contribution to their cost of care.
  • Home and Community-Based Services:  Providing long-term care in home settings, rather than in more costly nursing homes can improve quality and save taxpayers money.
  • No New Federal Funds:  Most importantly, innovative programs in Rhode Island, Indiana, Florida, and elsewhere neither seek nor require the massive new spending levels contemplated by an Obamacare expansion.

Obamacare’s Tax Increases ALREADY Killing Jobs

Before the holiday came word that workers for a Michigan-based medical device company had less to be thankful for – Obamacare cost some of them their jobs.  Device manufacturer Stryker announced that it would be shedding “five percent of its workforce over concerns about the impending 2.3 percent medical device tax prescribed by” Obamacare.  A press release from the Kalamazoo company noted that “the targeted reductions [i.e., layoffs]…are being initiated…in advance of the new medical device excise tax scheduled to begin in 2013” under Obamacare.

The company’s CEO had already announced in September that “we’re already starting to think about actions that offset that additional tax,” and the recent job-cutting announcement followed through on that earlier comment.  Of course, the big question is what other medical device companies and related organizations are also thinking about job cuts between now and 2013 due to Obamacare’s $800 billion in destructive tax increases.

Recall that last year Speaker Pelosi claimed that Obamacare would create “4 million jobs – 400,000 jobs almost immediately.”  Tell that to the workers at Stryker facing layoffs over the holiday season, all thanks to Obamacare.

Yet Another Report Documents Obamacare’s Failure to Control Premiums

Earlier today the Agency for Healthcare Research and Quality released a breakdown of premiums in employer-sponsored insurance in the ten largest states, based on Medical Expenditure Panel Survey (MEPS) data from 2010.  When compared to prior-year MEPS data from 2009, the two reports illustrate the continued increase in premiums for employer-sponsored coverage.

In 2010, premiums for family coverage nationwide increased by $844, or more than $70 a month – a 6.5% increase.  And premiums for single coverage increased by an average of $271 per year, or more than $20 per month.

On a state-by-state level, eight out of nine states included in both years’ surveys saw premium increases. (New Jersey dropped out of the ten most populous states following the 2010 census, and thus was not included in both years’ reports.)  The lone exception was Michigan, which faced flat to slightly declining premiums for employer coverage – a fact that one can reasonably attribute to the auto industry restructuring of 2009-2010 (i.e., significant reductions in employer-provided insurance benefits) rather than any slowdown in cost growth.  Four states saw family premiums skyrocket by more than $1,000 per year – and at $995 and $973, respectively, Illinois and New York weren’t far behind.

Remember that candidate Obama promised to cut premiums by $2,500 for the average American family – and his advisers told the New York Times that “We think we could get to $2,500 in savings by the end of the first term, or be very close to it.”  More than halfway into his term, the facts not only prove that Obamacare hasn’t brought premiums down – premiums continue to rise, and will only go higher as Obamacare is implemented.



  Average Single Premium, 2009 Average Single Premium, 2010 Increase Average Family Premium, 2009 Average Family Premium, 2010 Increase
California $4,631 $4,811 $180 $12,631 $13,819 $1,188
Texas $4,499 $4,951 $452 $13,221 $14,526 $1,305
New York $5,121 $5,220 $99 $13,757 $14,730 $973
Florida $4,488 $5,120 $632 $12,912 $15,032 $2,120
Illinois $4,725 $5,067 $342 $13,708 $14,703 $995
Pennsylvania $4,749 $4,959 $210 $13,229 $13,550 $321
Ohio $4,261 $4,669 $408 $11,870 $13,083 $1,213
Michigan $4,916 $4,713 ($203) $13,160 $13,148 ($12)
Georgia $4,692 $4,786 $94 $12,792 $13,114 $322
UNITED STATES $4,669 $4,940 $271 $13,027 $13,871 $844


Delays and Confusion on High-Risk Pools

USA Today reports this morning on the many states likely to miss the July 1 start-up date for the state high-risk pool program.  (July 1 is itself a delayed implementation date; the law states the program should have begun by last Monday, June 21.)  Some states like Michigan have said they may not be able to get their programs up and running until as late as October, due to lengthy bidding processes, the need for state legislative action, or both.  The Administration claims a detailed list of state risk pools will be available at; however, this website is not yet operational either.

Likewise, the New York Times also highlights the CBO report from last week stating that the health care law’s $5 billion in funding “will not be sufficient to cover the costs of all applicants.”  The article reports that states “would freeze [risk pool] enrollment if necessary to keep within their budgets,” but also notes that “it is not clear who would be legally responsible for claims that remain unpaid after a state’s allotment runs out” – one of the reasons why 20 states chose not to participate in the program.

Politico reports that states who did choose to run their own high-risk pools have obtained language in contracts signed with HHS that indemnifies them from any lawsuits against the risk pool, and clarifies that “they do not have a financial commitment to run the pool if HHS funds run out.”  That is a welcome outcome for the states, if it avoids imposing yet more unfunded mandates on them, but it also doesn’t answer the fundamental question of what happens should the funds prove insufficient.

To be clear: Many Republicans support high-risk pools as a means to offer quality, affordable coverage to individuals with pre-existing conditions.  The prime questions surrounding this program involve implementation and priorities: What happens if (or, more likely, when) the $5 billion in federal funds runs out?  And why did Democrats spend so much money on other, more dubious programs – $15 billion for a jungle gym “slush fund,” and billions more on backroom deals – rather than funding this critically important program properly in the first place?

Sen. Enzi Letter on High-Risk Pools

Attached is the final letter signed by Sen. Enzi and 30 other Republican Senators to Secretary Sebelius about high-risk pools.  This program was scheduled to start Monday (i.e. 90 days after the health law’s enactment), but is still not operational – and the Congressional Budget Office earlier this week found that the program is under-funded by $5-10 billion, which could result in as many as 500,000 individuals with pre-existing conditions not obtaining coverage that would have been available had the Democrat legislation devoted adequate funding to the high-risk pool program.

In this vein, it’s worth noting that the Wall Street Journal this morning reports that the high-risk pool program “is months behind schedule in several states” – including California, Maryland, and Michigan, where officials said they don’t expect enrollment to begin until September, at least three months behind schedule.  Also of note: Kansas – home state of HHS Secretary Sebelius – said it “will limit its state pool to 25 enrollees per month” due to concerns about lack of federal funding.  This latter problem would not be occurring had Democrats – instead of spending federal taxpayers’ money to finance slush funds and backroom deals – adequately funded the high-risk pool program in the first place.


Dear Secretary Sebelius:

As you know, the President signed the Patient Protection and Affordable Care Act (PPACA) into law on March 23, 2010.  Section 1101 of PPACA states “not later than 90 days after the date of enactment of this Act, the Secretary shall establish a temporary high risk health insurance pool program to provide health insurance coverage for eligible individuals during the period beginning on the date on which such program is established and ending on January 1, 2014”.  To date, the federal government has failed to provide any funding for this program and Americans with pre-existing coverage have not been able to enroll in the new high risk pools.

We have supported providing assistance to individuals who have difficulty obtaining health insurance and have supported the creation of high risk pools.  We are disappointed, therefore, to note the Administration’s failure or inability to meet this important deadline for providing health insurance benefits to individuals with pre-existing conditions.

We also continue to have concerns that the high risk pool provisions in the new health care law will fail to provide the assistance promised by supporters of the new law.  While some sources (including the White House health reform website) estimate that as many as 12 million people are denied coverage due to a pre-existing condition, the funding provided under the new law will provide coverage to only a fraction of those individuals.

In a new estimate, released on June 21, 2010, the Congressional Budget Office stated that the high risk pool provisions in the new law will provide coverage to only 200,000 individuals.  They further estimated that the true cost of providing coverage to eligible individuals through high risk pools would likely cost an additional $5 to $10 billion.   This analysis is consistent with the estimates prepared by your own chief Medicare actuary, Richard Foster.  In his April 22, 2010, memo regarding the estimated financial effects of the new health care law, Mr. Foster estimates that the high risk pool program could run out of money within the next one to two years.  These funding issues have led at least 19 States to decline to participate in this program.

Unfortunately, the debate and subsequent passage of the new health care law have been marred by many similar episodes that have attempted to disguise the true cost of the proposals.  Coupled with concerns over how the regulations mandated by the new law will cause up to 1.4 million individuals to lose their current coverage and the law’s failure to provide any assistance to individuals currently enrolled in existing high risk pools, these facts raise serious issues about whether the existing statutory provisions will meet the needs of individuals with pre-existing conditions.  In order for Congress to review the ongoing efforts to implement the high risk pool provisions and determine what changes may need to be made, we would request that you provide answers to the following questions by June 30, 2010:

  1. When will the money authorized under the new health reform law be distributed to those states that have agreed to participate in the new high risk pool program?
  2. When will you provide funding to operate high risk pools in the 19 states that have declined to participate in the new federal program?
  3. Please identify how many individuals are estimated to be covered under the new high risk pool, year by year through 2014.


A Reading Guide to Obamacare’s Backroom Deals

“I think the health care debate as it unfolded legitimately raised concerns not just among my opponents, but also amongst supporters that we just don’t know what’s going on. And it’s an ugly process and it looks like there are a bunch of back room deals.”

— President Obama, interview with ABC’s Diane Sawyer, January 25, 2010[i]


The White House recently enacted its health “reform” agenda by signing the 2,733 page legislation (H.R. 3590) that passed the Senate in December.[ii] While the Administration touts its removal of the “Nebraska FMAP provision” that saw 49 other states funding Nebraska’s Medicaid largesse (known as the “Cornhusker Kickback”), it did not address other deals negotiated by Democrats in the Senate legislation. Many other backroom agreements are included in the legislation the President has now enacted into law:

Page 428—Section 2006, known as the “Louisiana Purchase,” provides an extra $300 million in Medicaid funding to Louisiana.[iii]

Page 2132—Section 10201(e)(1) provides an increase in Medicaid Disproportionate Share Hospital (DSH) payments for Hawaii, meaning 49 other states will pay more in taxes so that Hawaii can receive this special benefit.

Page 2203—Section 10317 amends provisions in Medicare so that hospitals in Michigan and Connecticut can receive higher payments.

Page 2222—Section 10323 makes certain individuals exposed to environmental hazards eligible for Medicare coverage. The definition used in the bill ensures the only individuals eligible will be those living in Libby, Montana.

Page 2237—Section 10324 increases Medicare payments by $2 billion in “frontier states.”[iv]

Page 2354— Section 10502 spends $100 million on “debt service of, or direct construction of, a health care facility,” language which the sponsors intended to benefit Connecticut.[v]

Page 2395—Section 10905(d) exempts Medigap supplemental insurance plans from the new tax on health insurance companies; press reports indicate this provision was inserted to benefit an insurer headquartered in Nebraska.[vi]

Even after the public outrage from the “Cornhusker Kickback,” Democrats used separate legislation designed to “fix” this particular provision (H.R. 4872) to add yet more deals behind closed doors.[vii] For instance, page 71 (Section 1203(b)) of the “fixer” bill provided an increase in Medicaid disproportionate share hospital payments just for Tennessee. And Section 2213 (page 145) of the original version of the “fixer” bill[viii] included a sweetheart deal making the Bank of North Dakota the only financial facility in the country exempted from Democrats’ government takeover of student loans—a backroom deal so egregious that it was removed within hours once the bill was finally revealed to the American public.[ix]

These specific agreements and provisions also do not display the full scope of the White House’s legislative deal-making. For instance, the head of the pharmaceutical industry said the Administration approached him to negotiate a deal with his industry: “We were assured, ‘We need somebody to come in first.  If you come in first, you will have a rock-solid deal.’”[x] And former Democratic National Committee Chairman Howard Dean publicly admitted at a town hall forum that “The reason that tort reform is not in the [health care] bill is because the [Democrat Members] who wrote it did not want to take on the trial lawyers.”[xi]

The many pages of backroom deals included in the health care takeover legislation raise several questions: If the bill itself was so compelling, why did Democrats need billions of dollars in “sweeteners” negotiated in secret in order to vote for it? If President Obama was so concerned about the public perceptions created by the backroom dealing, why did he not propose to strike all the special agreements? Does he believe that this pork-barrel spending is the only reason why Democrats voted to pass his government takeover of health care in the first place?


[i] Full interview transcript available at

[ii] Senate-passed bill text available at

[iii] “Dems Protect Backroom Deals,” Politico February 4, 2010,

[iv] Congressional Budget Office, score of H.R. 3590 including Manager’s Amendment, December 19, 2009,

[v] “Dodd Primes Pump in Bid to Survive,” Politico December 22, 2009,

[vi] “How Nebraska’s Insurance Companies Stand to Profit from Ben Nelson’s Compromises in Health Care Bill,” Huffington Post 21 December 2009,

[vii] Senate-passed bill (H.R. 3590) text available at; reconciliation bill (H.R. 4872) text available at

[viii] House Rules Committee amendment in the nature of a substitute,

[ix] “Conrad Wants Controversial Carve-Out Axed,” Roll Call March 18, 2010, The provision was stripped by the Rules Committee prior to full House consideration of H.R. 4872.

[x] Quoted in “White House Affirms Deal on Drug Cost,” New York Times August 5, 2009,

[xi] Exchange at Town Hall forum in Reston, VA, August 25, 2009, available online at

McCain Amendment (#3570) Striking “Sweetheart Deals”

Senator McCain has offered an amendment (#3570) to strike the “sweetheart deals” included in the health care law and the reconciliation bill.
  • The amendment repeals the following “sweetheart deals” included in the health care law and the reconciliation bill:

1. Increase in Medicaid disproportionate share hospital (DSH) payments just for Tennessee (Section 1203, page 71 of H.R. 4872);
2. Increase in Medicaid DSH payments just for Hawaii (Section 10201, page 2132 of H.R. 3590);
3. The “Louisiana Purchase” to increase Medicaid funding just for Louisiana (Section 2006, page 428 of H.R. 3590);
4. Increased Medicare reimbursement just for frontier states (Section 10324, page 2237 of H.R. 3590);
5. Medicare coverage just for Libby, Montana residents exposed to environmental hazards (Section 10323, page 2222 of H.R. 3590);
6. A $100 million hospital funding provision intended to benefit Connecticut (Section 10502, page 2354 of H.R. 3590); and
7. Extension of Section 508 hospital reimbursement provisions just to Michigan and Connecticut (Section 10905, pages 2205-06 of H.R. 3590)

Arguments in Favor:
  • Citizens in other states should not be asked to see their taxpayer dollars funding special “backroom deals” for certain locales.
  • The public outrage over the “Cornhusker Kickback” included in H.R. 3590 may lead many to believe it is long past time for Congress to strip out ALL of the “backroom deals” included in the Senate bill – rather than using the reconciliation measure to add more of them.
  • Given President Obama’s campaign promises of transparency – including his famous pledge to televise negotiations on C-SPAN – the American people deserve action consistent with Democrats’ rhetoric.
  • If Democrats support this government takeover of health care, they should be willing to support the legislation on its own merits – without the need to add on extraneous “backroom deals” in order to win votes.

Health “Reform” By the Numbers: 56%


Requested 2009 rate increase by Michigan Blue Cross/Blue Shield, according to an Administration report; Senate Democrats gave the same insurance company a “backroom deal” (Section 10905(c), page 2394) that exempts Michigan Blue Cross/Blue Shield from the new tax on all other insurance companies.

Top Ten Reasons House Democrats Don’t Want to Vote for Senate Democrats’ Health Care Bill

Recent press reports indicate that Speaker Pelosi and House Rules Committee Chairwoman Louise Slaughter have attempted a procedural ploy—the “Slaughter Solution”—to shield wary House Democrats from having to take an up-or-down vote on the widely unpopular health legislation that passed the Senate in December.[i] While press reports about potential parliamentary obstacles have raised newfound questions about this strategy, the RPC has compiled a list of reasons why House Democrats want to avoid voting on controversial provisions in the Senate bill that did NOT appear in the House-passed measure (H.R. 3962):

  1. “Cornhusker Kickback. Section 10201(c)(4)—entitled “Equitable Support for Certain States” (page 2129)—provides that the state of Nebraska—and only Nebraska—will see its full Medicaid costs paid in perpetuity by taxpayers in other states.
  2. Federal Funding of Abortion. Section 10404 of H.R. 3590 (pages 2070-2086) would permit federal funds to subsidize plans covering abortion, would permit a multi-state health plan to offer abortion coverage, and would require citizens in states that have opted-out of elective abortion coverage in their own exchange to fund federal subsidies for plans that cover elective abortion in other states. In addition, Section 10503(b) of the bill (page 2356) includes $7 billion in new mandatory spending on community health centers—funding that is NOT subject to any restrictions prohibiting federal dollars from funding elective abortions.
  1. “Cadillac Tax” on Health Plans. Section 9001 (page 1941) imposes a tax on “Cadillac” health plans. The vast majority of the tax would be imposed on individuals with incomes under $250,000,[ii] thus breaking one of the central promises of then-Senator Obama’s presidential campaign and infuriating Democrats’ “Big Labor” backers.[iii]
  2. The “Louisiana Purchase. Section 2006 (page 428) provides an extra $300 million in Medicaid funding to Louisiana.[iv]
  1. Tax on Hiring Low-Income Workers. While the House bill imposes an across-the-board payroll tax on firms that cannot afford health coverage for their workers, Section 1513(a) of the Senate bill (page 345) singles out employees who rely on health insurance subsidies for its new “tax on jobs” in the form of a penalty of up to $3,000 per low-wage hire, thus discouraging firms from hiring these workers.
  1. “Gator Aid. Section 3201(g) of the bill (page 878) shields 800,000 Florida residents from Medicare Advantage cuts. In December, 57 Senate Democrats voted not to extend this special deal to all Medicare beneficiaries nationwide.[v]
  1. Raid on Social Security and Related Entitlements. The Congressional Budget Office recently confirmed that the 10-year deficit savings under the Senate bill ($118 billion) will be exceeded by the new revenue generated by Social Security ($52 billion) and a new long-term care entitlement ($70.2 billion). Since this $122.2 billion in new revenue will eventually be paid back out in Social Security and related claims costs, the Senate bill either raises the deficit or raids the Social Security Trust Fund in order to pay for the bill’s new health care entitlements.
  2. Construction Firms Singled Out for Higher Taxes. Section 10106(f)(2) of the bill (page 2107) provides that, while firms with fewer than 50 workers in every other industry would be exempt from the Senate bill’s “tax on jobs,” construction firms with as few as five workers would be subject to the bill’s harsh tax penalties. These onerous provisions focused on one industry could further undermine a construction sector currently suffering from a 27.1% unemployment rate.[vi]
  3. New Board of Bureaucrats to Constrain Medicare Spending. Section 3403 of the bill (page 982) establishes a new board of unelected bureaucrats empowered to make binding recommendations on cost reductions in Medicare. Many may be concerned that the bill could insert bureaucrats between patients and doctors, particularly given President Obama’s comments that there needs to be a “difficult democratic conversation” about what the President views as excessive spending on end-of-life care.[vii]
  1. Backroom Deal for Insurer Proposing 56 Percent Rate Increase. Section 10905(c) of the bill (page 2394) includes language exempting Michigan Blue Cross/Blue Shield from the new tax on health insurers, despite an Administration report highlighting the insurance carrier’s proposed 56% rate increase in 2009.[viii]

The “Slaughter Solution” would attempt to bypass all these unpopular provisions by having the House enact the Senate bill into law without ever actually voting on the Senate bill—which would put House Democrats at odds with President Obama’s call for an “up-or-down” vote on health care legislation.[ix] Given the backroom deals and controversial provisions included in the Senate-passed bill, it is not surprising that House Democrats maintain their reluctance to vote for a bill widely rejected by the American people—with nothing more than a promise from Senate Democrats to try to “fix” the bill through the uncertain reconciliation process or at some later time.


[i] “Slaughter Preps Rule to Avoid Direct Vote on Senate Bill,” CongressDailyAM March 10, 2010, available at

[ii] The Joint Committee on Taxation found that in 2019, 84 percent of the revenue from the “Cadillac” tax would come from families making under $200,000 annually. JCT document #D-09-24, analyzing the Reid substitute for H.R. 3590, November 19, 2009, p. 4.

[iii] Presidential campaign speech in Dover, NH, September 12, 2008, relevant excerpt available at

[iv] “Dems Protect Backroom Deals,” Politico February 4, 2010,

[v] Senate Record Vote 370 on McCain motion to commit,

[vi] Bureau of Labor Statistics, “The Employment Situation—February 2010,” March 5, 2010,, Table A-14, p. 26.

[vii] David Leonhardt, “After the Great Recession,” New York Times May 3, 2009,

[viii] White House Office of Health Reform, report on insurance company practices, February 2010,

[ix] President’s Remarks on Health Care Reform, March 3, 2010,

Potential “Cash for Cloture” Amendment (#3357) Vote

Wanted to alert you to the possibility of a vote on an amendment (#3357) to the Baucus substitute offered by Sen. Dodd.  This amendment would include a one-year extension of Section 508 hospital reclassifications included in the Baucus substitute, but would also add a third subsection providing specific Medicare wage increases to hospitals in Connecticut and Michigan.  These provisions were added in the manager’s amendment of the Senate health care bill (page 2205, line 10 through page 2206, line 9 of H.R. 3590 as passed the Senate and available on LIS) as part of the “Cash for Cloture” package in December.

With the President today calling for the removal of “provisions that were more about winning individual votes in Congress than improving health care for all Americans,” some may question whether Democrats’ latest health care strategy is NOT to abandon this kind of backroom dealing in the first place, but instead transfer it to other, less prominent, pieces of legislation like the jobs bill.