The Rising Costs of Medicaid Expansion in Louisiana

A recent Associated Press story claimed that Louisiana’s Medicaid program is spending less than expected. Don’t you believe it. By multiple measures, Medicaid expansion has proved a budget buster — with worse outcomes ahead.
Take the claim that “more than $535 million of the less-than-projected spending is in the Medicaid expansion program.” But Medicaid expansion’s enrollment, or costs, have not dipped below projections. Far from it, in fact.

In 2015, the state’s Legislative Fiscal Office estimated that expanding Medicaid eligibility would raise spending on benefits by $5.8 billion over five years under moderate enrollment, or $7.1 billion over five years in a high enrollment scenario — roughly $1.2 to $1.4 billion annually.

Compare those numbers to the Louisiana Department of Health and Hospitals’ January estimate. Instead of costing $3.45 billion this fiscal year, Medicaid expansion will “only” cost taxpayers $2.91 billion. In other words, rather than nearly tripling the 2015 cost estimates, expansion will instead exceed the original high-end projections by a mere 108 percent.

First, the Department of Health’s analysis touting purported “savings” to the state ignores the “woodwork effect” — individuals already eligible for Medicaid who only sign up because of the “hoopla” surrounding expansion. The analysis trumpets the individuals previously enrolled in Medicaid for whom the state can receive a higher federal match, saving the state money. However, it does not examine the opposite phenomenon — whether the publicity surrounding expansion has increased enrollment in populations for which the state must pay a larger share of costs.

In 2015, the Legislative Fiscal Office assumed no “woodwork” effect when analyzing the effects of expansion. But since then, enrollment in Medicaid expansion has skyrocketed. While the Edwards administration first claimed only 300,000 would sign up for expansion, enrollment now exceeds 460,000. A serious fiscal analysis would use the exploding enrollment numbers to study the “woodwork” issue afresh; the Department’s did not.

Second, the analysis also ignores the issue of “crowd-out” — individuals dropping private coverage to enroll in government programs. In 2015, the Legislative Fiscal Office assumed that between 67,000 and 89,000 individuals would drop their private coverage to enroll in “free” Medicaid; that coverage would cost $1.3 billion over five years, $99 million of that coming from the state general fund.

Particularly given the higher than projected enrollment since the 2015 estimate, the department should analyze the costs to taxpayers associated with individuals who dropped private coverage to join a government program. It has not.

Third, the proposed savings rest on a budget gimmick: Providers and insurers agreeing to pay higher taxes — because those “taxes” generate themselves money. The doctors, hospitals and insurers agree to give more funds to the state, the state collects federal Medicaid matching dollars on that money, and then gives both the state and federal funds right back to hospitals and insurers.

If this fiscal maneuvering — providers raising taxes on themselves to obtain more government funding — sounds like a scam to you, you’re not alone. None other than Joe Biden called it as much back in 2011. Other liberal researchers have called the gimmick “egregious” and a “national disgrace.”

President Trump’s budget endorsed legislation that would crack down on this “Medicaid tax gimmick,” and in 2010 the bipartisan Simpson-Bowles commission endorsed eliminating it entirely. With our nation facing trillion-dollar deficits, Washington will soon have to return to fiscal discipline, putting both parts of the Medicaid expansion in Louisiana — Obamacare’s enhanced federal match for able-bodied adults, and the tax gimmick used to pay Louisiana’s portion of expansion costs — under threat.

Far from small or stable, Medicaid expansion in Louisiana has become a sprawling monstrosity built on a fiscal house of cards. Policy-makers should examine ways to unwind the expansion sooner rather than later, before it starts falling down of its own weight.

This post was originally published in the Shreveport Times.

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.