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.

A Retiree Health Care “Fix” That Isn’t

Since the Affordable Care Act became law in 2010, supporters and opponents have argued about whether the measure would lead employers to drop health coverage for workers. This issue has returned to the news; Wal-Mart recently decided to drop coverage for some of its part-time workers, and The Wall Street Journal reported this week that some firms, seeking to avoid employer penalties under the law, have encouraged employees to enroll in Medicaid.

While their private-sector counterparts have received more attention, public-sector employees–particularly retirees–could face similar problems with dropped coverage. The Atlantic reported last week on the trend of cities in financial distress, from Detroit to Chicago to Sheboygan, Wis., reducing or eliminating coverage and seeking to use the insurance exchanges to get out of their health-care obligations to retirees. As one pension expert quoted in the Atlantic noted, “every public-sector employer is looking at the exchanges as a potential way to get out of the unfunded liabilities that the public sector is bearing.”

But transferring state and municipal retirees to insurance plans on the exchanges doesn’t reduce the amount of unfunded liabilities; it shifts the cost from state and local governments to Washington. Many of the retirees in question could qualify for federal premium and cost-sharing subsidies for their exchange insurance policies. Even by Washington standards, the magnitude of the problem is daunting: A 2012 Pew study found that state governments held $627 billion in unfunded retiree health obligations; adding local government health plans could push those obligations toward $1 trillion.

State governments are grappling with a difficult revenue environment, while the federal government faces long-term fiscal challenges caused by demographic shifts. Given these dynamics, what looks to some mayors like a quick fix to their budget woes–shifting retirees to the federal exchanges–could, in the broader fiscal sense, amount to shifting deck chairs on the Titanic. If efforts by cities and states ultimately encourage private-sector firms to drop health coverage for their workers and retirees, they will add to our nation’s collective entitlement obligations—and could end up sinking our federal fiscal ship.

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

Why States Are Hesitating to Expand Medicaid

Just before the July 4 holiday the White House Council of Economic Advisers released a report titled “Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid.” The Pew Trusts also released a data compilation last week. But that one showed why many states, which had large and growing Medicaid programs even before Obamacare, have not rushed to embrace greater expansion.

Pew examined data from 2000 to 2012 and found large increases in state Medicaid spending even after adjusting for inflation. Nationally, Medicaid spending grew an average of 4% more than inflation every year during this period. All but two state Medicaid programs grew at real (inflation-adjusted) rates greater than 2% annually. In addition, programs in eight states and the District of Columbia grew at rates exceeding 5.9% per year–meaning that spending doubled during the 12-year period, even after accounting for inflation.

Some might argue that robust economic growth, which leads to an expanding revenue base, could allow states to absorb sustained increases in Medicaid spending greater than the level of inflation. But the Commerce Department’s Bureau of Economic Analysis found that inflation-adjusted gross domestic product grew 23.1% from 2000 through 2012. Meanwhile, Medicaid spending grew nearly three times as fast in inflation-adjusted terms: an average of 63% nationally. Only one state, New Hampshire, increased its Medicaid spending at a rate slower than the national economy grew from 2000 through 2012.

So during the decade before Obamacare took effect, states had dramatically increased their Medicaid expenditures—spending well above inflation and exceeding the economic growth their revenue forecasts are based on. Greater Medicaid expenditures have an opportunity cost: Many states have had to divert funds from education or other priorities to cover increased spending on health. Little wonder that many states have decided not to expand Medicaid further. In some respects, it may be smarter to ask why so many decided to embrace expansion.

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