Medicaid Expansion: Is This a ‘No-Brainer’?
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Leaving Money on the Table

Leaving Money on the Table

Should the states that have thus far turned up their noses at federal subsidies to expand Medicaid coverage to their citizens under Obamacare be praised for upholding conservative principles and fiscal responsibility, or derided for ignoring the needs of their poorest citizens and being penny wise and dollar stupid? When this issue is discussed in the media, in state legislatures and governor’s mansions, and in public policy discourse: this question is as often framed around the political / electoral ramifications of the policy as it is around ethical or financial considerations. Frankly, it is hard to get too excited about the fate of the politicians who might win or lose leverage or elections as a consequence of this policy decision. Sadly, these politicians are insulated from the direct consequences of the expansion or contraction of Medicaid – they generally have health insurance coverage and lots of health care options. When politicians feel insulated, they tend to make ideological, rather than practical decisions, and often shoot themselves, and the rest of us, in the foot. The reality is that the under-appreciated impacts of the decision to expand or contract Medicaid programs affects not just the working or unemployed poor, it affects all of us.

Those of you who regularly read this blog know that I really am no fan of Medicaid: the reimbursement rates are pretty miserable, often failing to cover the cost of providing the care, and most Medicaid Managed Care Plans (especially the for-profit plans) are draining away funds for unnecessarily complex and expensive administrative overhead that provides little or no benefit for either enrollees or government payers. Nonetheless, Medicaid does play an important role in covering the otherwise uninsured and uninsurable, keeping safety net hospitals, EDs, and primary care clinics in under-served areas open, and providing some measure of well-being to the poor, the unemployed and under-employed, and otherwise vulnerable members of our society. Leave it to the Robert Wood Johnson Foundation and the Urban Institute to ferret out the consequences of not expanding Medicaid and reframe this discussion in more concrete, less ideological or political tones. In a recently published analysis of the 24 states that have not expanded Medicaid under Obamacare, the authors of this study tease out the financial consequences of this decision for each of these states, predicated on historical patterns of funding for the program, and address these consequences as they relate to state budgets, hospital finances, and state economies.

The historical trends for Medicaid are significant: “facing bipartisan gubernatorial opposition, Congress lowered the federal share of Medicaid spending just once since 1980, while cutting Medicaid eligibility, services, and provider payments more than 100 times.” Thus, “even if future lawmakers reduce federal Medicaid spending, high federal matching rates are likely to remain at the ACA’s enhanced rates, given historic patterns.” This goes directly to the argument that conservatives make regarding future state expenditures to maintain Medicaid expansion to more enrollees: will states be left holding the bag if, and when, federal subsidies disappear? If this is the only question state legislators consider, you can understand how they might balk at making this commitment. But there is more to this story, and it has to do with both the absurdity of facilitating the one-way flow of tax dollars out of these 24 states and into the coffers of the 26 states that have expanded Medicaid, and with the impact of the cuts to reimbursement to safety net hospitals under the PPACA that were intended to be offset by these federal Medicaid subsidies. The authors of this analysis clearly show that by foregoing $424 Billion in federal Medicaid funding from 2013 to 2022, these states will see falling economic activity and job growth, and hospitals in these states will suffer losses $168 Billion that many can ill afford. Alabama, for example, will lose $14.4 Billion in federal Medicaid funding (and hospitals in Alabama will lose half of that) in order to avoid spending $1.08 Billion over 10 years to expand Medicaid to over 254,000 adults with incomes at or below 138 percent of the federal poverty level. That seems like these states are shooting themselves in BOTH feet to me.

The authors extend their analysis to other direct and indirect consequences of this decision. Between September 2013 and June 2014, (due to the improving economy) the number of uninsured declined by 9 percent in nonexpanding states and 38 percent in states that expanded Medicaid. The proportion of America’s uninsured living in nonexpanding states rose from 49.7 percent in September 2013 to 60.6 percent during this same period. If the unstated objective is to encourage the poor to move other states that have better Medicaid coverage, could such a social translocation possibly pass the ethical sniff test? In 2014, several interstate hospital chains reported improved hospital finances in states that expanded Medicaid and worsening finances with increased uncompensated and self-pay patient caseloads and falling Medicaid revenue in states that failed to expand Medicaid. How many more hospitals and EDs in underserved urban and rural communities can we afford to lose? What legislators may not appreciate is that these losses will eventually affect them directly, and their family members, along with the rest of us. In Atlanta, the major trauma center for the city (Grady Memorial) is the state’s biggest safety net facility, located just three blocks from the State Capitol.

The Council of Economic Advisers estimated that Medicaid expansion would add, in non-expanding states, 78,600 jobs in 2014, 172,400 jobs in 2015, and 98,200 jobs in 2016. In contrast, in one year, these 24 states spent an estimated $44.9 billion on tax reductions and other subsidies to attract private business, or 14 times the amount that would have been required to finance Medicaid expansion for ten years. Sixteen states did a comprehensive analysis of the impact of Medicaid expansion, and all sixteen found that expansion would help each state’s overall budget. Alabama, again as an example, would increase general revenue by $935 million over the cost of expansion, from 2014-2020.  Being a red state doesn’t necessarily mean you have to operate in the red.

I am convinced:  The decision to expand Medicaid under the ACA should be a no-brainer for states that have yet to do so. It may be ideologically exasperating to take the plunge, but if you believe in fiscal responsibility, it makes little sense to ignore these financial impacts, even if you don’t give a damn about the poor or the hospitals that serve them.

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Medicaid Expansion: Is This a ‘No-Brainer’? — 2 Comments

  1. Even if a state has to kick in just 10% of the total cost of Medicaid expansion, 10% of tons of money (hundreds of millions or billions) is still tons of money. Where is that money going to come from? In my state, Tennessee, it will be taken from higher education. Medicaid (TennCare) is already the second biggest item in the state budget after K-12 education, consuming about 30% of state spending, because there is an INFINITE demand for “free” medical care.
    This has already severely damaged higher education here. When I went to a state college in Tennessee (1977-81), the state covered more than 2/3 of the total cost. Now it covers less than 30%. When that state support was pulled out of higher education, where did it go? To Medicaid (TennCare). This will get worse if Tennessee expands TennCare – even if the feds pick up 90% of the cost. That’s why expanding Medicaid in Tennessee would be a mistake.

    • Andy, according to the RWJ analysis, Tennessee would spend $1.7 B to expand Medicaid for 10 years, and get $22.5 B ($7.7 B of which would go to hospitals) in federal subsidies back, and much of this is already getting paid to the feds by state taxpayers. By comparison, in a single year (2012), it cost Tennessee $1.29 B in incentive payments to attract private business. The state could potentially place most of the poor, uninsured adults who require mental health services on Medicaid and shift many (but not all) of their mental health care costs to Medicaid, with the federal government taking over significant financial responsibilities from the state.

      According to the AARP, for Tennessee, uncompensated care was estimated to be over $4 billion in 2009, with hospitals providing 61% of the total and clinics and physicians providing 29%, and the number of uninsured is likely to exceed 575,000 people. Medicaid expansion in the state would, over 5 years, generate: production of $17.6 B in goods and services; salaries, wages, and benefits of $7.9 B; an annual average total of 21,898 full- and part-time jobs; $578 M in state and local taxes, and $30 in federal moneys for every $1 spent on expansion. This is not to mention $519 M in state HMO taxes, which is more than enough to cover the state’s costs of Medicaid expansion. Plus, mortality rates from common chronic conditions are approximately 25% higher for the uninsured and there is a higher rate of infant mortality. AARP estimates expanding Medicaid in Tennessee would prevent 5,172 deaths per year, or one death every 100 minutes. This is not merely a state budget issue, it is a state economy and citizen health issue.

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