Heritage Foundation - Medicaid needs reform, not expansion.
This federal–state health care program provides health care to over 60
million Americans and consumes a growing portion of state and federal
budgets. Research shows a long history of Medicaid enrollees having
worse access and outcomes than privately insured individuals.
[1] Due in part to low reimbursement, one in three doctors refuses to accept new Medicaid patients.
[2]
Despite access issues, Medicaid spending continues to grow. In 2010,
total federal and state spending on Medicaid exceeded $400 billion.
[3]
Instead of reforming Medicaid, the Patient Protection and Affordable Care Act (Obamacare) expands eligibility to
all individuals earning less than 138 percent of the federal poverty level (FPL).
[4]
The Medicaid program is already struggling to provide care to its core
obligations—a diverse group of low-income children, disabled, pregnant
women, and seniors. Adding more people further exacerbates Medicaid’s
underlying problems.
The expansion of Medicaid fuels a larger
trend under Obamacare: government coverage supplanting private
coverage. By 2021, 46 percent of all Americans will be dependent on the
government for their health care. Of this group, 86.9 million will be on
Medicaid/Children’s Health Insurance Program (CHIP), followed by 64.3
million on Medicare and 23.4 million enrolled in government exchanges.
[5] This will push U.S. health care closer to a government model.
The Temptation of Medicaid Expansion
Obamacare provides additional federal
funding to the states for this new expansion population. Starting in
2014, the federal government would pick up 100 percent of the benefit
costs for the newly eligible population for three years. Thereafter,
this enhanced federal funding would gradually decline to 90 percent in
2020.
Obamacare also directed states to expand eligibility or risk forgoing all of
their federal Medicaid dollars. The Supreme Court, however, ruled on
behalf of 26 state plaintiffs that this “all-or-nothing” proposition was
coercive. To rectify this, the Court essentially made the expansion
optional, meaning that a state could reject the expansion but not lose
its existing Medicaid funding.
Today, governors and state legislators
are weighing this option as they develop their budgets for the coming
year. Proponents use a variety of unrealistic arguments in support of
the Medicaid expansion:
- It provides states with an influx of new, generous federal revenue.
This will cause states to spend money that they otherwise would not
have spent. Moreover, due to the structure of Obamacare, states will
likely have to absorb many currently eligible but not enrolled
individuals as well as those who lose their existing employer coverage.
These effects would add to the cost.[6]
- It will result in savings as the cost of uncompensated care declines with expanded coverage.
Heritage data analysis shows that in the first few years, when federal
funding is at its peak, states may see some savings. Over time, however,
in the majority of states, Medicaid spending will accelerate and dwarf
any projected uncompensated care savings.[7]
These savings are also contingent on states enacting legislation to
further reduce uncompensated care funds (Disproportionate Share Hospital
[DSH] payments) on top of the $18 billion of federal cuts enacted under
Obamacare. Heritage analyst Ed Haislmaier predicts that “governors and
state legislators should expect their state’s hospitals and clinics to
lobby them for more—not less—state funding to replace cuts in federal
DSH payments.”[8]
Finally, contrary to the theory that expanding Medicaid would cause
the number of uninsured to decline and reduce the need for uncompensated
care, a similar expansion in Maine found the opposite effect. In Maine,
uncompensated care increased, and the number of uninsured in the
targeted population (those below 100 percent of FPL) saw limited change.[9]
- Rejecting the expansion will mean that other states get more.
The federal share of Medicaid is based on a formula calculation and
actual expenditures. Rejected funds do not go into a general fund for
redistribution to other states. The fewer states that expand, the less
the federal government spends. States that draw down on these new
federal funds fuel the fiscal crisis in our country.
The Trade-Off Dilemma
Committing to an expansion creates a
dilemma for the states. To control Medicaid spending, states typically
fall back on predictable techniques to manage costs, such as limiting
reimbursements to health care providers and limiting services, which
ultimately limits access to care. These Medicaid cost controls, however,
go only so far. Today, Medicaid consumes over 23 percent of state
budgets, surpassing education as the largest state budget item.
[10]
As Medicaid spending continues to rise, other important state
priorities such as education, emergency services, transportation, and
criminal justice are squeezed.
Finally, if states resist balancing
among spending programs, the alternative is generating more revenues
with tax increases. But higher taxes come with a steep price: They
reduce economic growth. With most states still experiencing anemic
growth, tax increases on top of already higher taxes at the federal
level are not an appealing option.
[11]
Fueling the Country’s Fiscal Crisis
Any positive assumptions about Medicaid
expansion also assume that federal funding remains unchanged. With
deficits running over $1 trillion a year, the country’s fiscal future is
in need of reform. Federal spending on health care entitlements,
including Medicare and Medicaid, is the largest driver.
[12]
Even this Administration recognizes that
such entitlement spending, including Medicaid, is unsustainable. The
President’s fiscal year (FY) 2011 budget outlined several Medicaid
reform policies, including setting an across-the-board blend rate for
federal reimbursement and limiting the states’ ability to leverage
provider taxes for the state share of matching funds. Although the
Administration attempts to distance itself from its own proposal, any
serious efforts toward
entitlement reform must include Medicaid.
In spite of this fact, several Democrat
and Republican governors that support Medicaid expansion condition their
support on federal funding remaining untouched. In essence,
pro-expansion governors are telling Washington, “don’t touch entitlement
spending.” This reliance on federal revenues exacerbates the country’s
fiscal challenges and could also affect states’ own fiscal health.
Recently, Moody’s cited Missouri’s reliance on the federal government,
including Medicaid funding, as adversely affecting its credit rating
outlook.
[13]
Setting Good Policy
There are several recommendations that
the states and Congress could adopt to help mitigate the crisis that
Obamacare has exacerbated:
- Reject the Medicaid expansion.
Greater dependence on federal dollars tangles the states in bad fiscal
policy and bad health care policy. States that reject the expansion
avoid relying on unsound federal revenues, stretching an already thin
program beyond its means and adding millions to a failing program.
- Scale back existing eligibility where possible.
Some states have allowed Medicaid to grow beyond its original intent by
moving middle-class families into a welfare program. To restore
Medicaid as a safety-net program, states should review eligibility
levels, scale back eligibility where possible, and restore the program’s
focus on its core Medicaid functions.
- Advance a separate, state alternative.
Instead of using a flawed Obamacare model, states should put in place
an alternative. States should develop a state solution tailored to the
specific needs of this new population rather than placing them in a
one-size-fits-all Medicaid option.[14]
A non-Medicaid, state-based approach, especially for this targeted
population, would give states the control to design policies best suited
to addressing the needs of their citizens without onerous Medicaid
constraints.
- Congress should eliminate the federal enhanced Medicaid match.
To avoid the argument that states rejecting Medicaid are leaving
federal dollars on the table, Congress should level the playing field by
removing the new, enhanced federal dollars. This would remove/minimize
the temptation of excessive and unsustainable federal funding and
restore fiscal constraint at the federal level. States would still be
able to expand eligibility but would have to do so with the traditional
(non-enhanced) federal matching rate. If Congress ignores this
opportunity to restrain federal spending, it could “block grant” the
enhanced federal dollars to the states to develop their own
state-specific approaches, including alternatives outside of Medicaid.
Alternate Solution Needed
Medicaid is already spread too thin.
Adding a new and complex population to this program does not solve its
challenges; it only makes them worse. States should resist, and Congress
should remove, this temptation. Both should begin to lay out a better
and more sustainable alternative than a failing government health
program to care for the less fortunate.
—Nina Owcharenko is Director of the
Center for Health Policy Studies and Preston A. Wells, Jr., Fellow at
The Heritage Foundation.