Medicaid Expansion, ‘Free’ Money That Costs a Lot

By Dave Emanuel

“The federal government will pay 100 percent of the costs for Medicaid expansion through 2016. After that, it will drop to 90 percent by 2020.”

How can you beat a deal like that? Apparently, policymakers in 33 states don’t think you can. They have expanded Medicaid coverage under the provisions of the Affordable Care Act.

Under the Affordable Care Act’s provisions for Medicaid expansion, virtually anyone with annual earnings at or below 138 percent of the federal poverty level is eligible. What is left unsaid is that it is anybody’s guess what options are available to a Medicaid recipient whose income rises to 139 percent of the qualifying level. Consequently, the specter of losing coverage or having to pay for or pay more for insurance is great motivation to remain mired in poverty; why accept a $100 raise and lose $1,000 in health benefits?

Direct cost to states is another consideration. The Kaiser Family Foundation reports:

Analyses find positive economic effects of expansion largely tied to the infusion of federal dollars, despite Medicaid enrollment growth initially exceeding projections in many states. Some studies look at 2014-2016 when expansion costs were 100 percent financed by the federal government, others studies project net fiscal gains even after states start to pay a share of expansion costs (up to 10 percent by 2020). Studies also show that Medicaid expansion resulted in reductions in uninsured visits and uncompensated care costs for hospitals, clinics, and other providers.”

In the real world, the scenario is somewhat different.

Kentucky, which expanded Medicaid coverage in 2014, is struggling to deal with a revenue shortfall. According to state Health Secretary Adam Meier, the costs of expansion will leave the state scrambling to come up with $296 million in additional revenue by 2020. To avoid spending millions of dollars that it does not have, and cannot legally spend, Kentucky is now considering paring its expanded Medicaid rolls. (Like Georgia, Kentucky is constitutionally required to maintain a balanced budget).

In Arizona, California, Colorado, Indiana and Oregon, Medicaid expansion has been as revenue-neutral as the credit card charges for a weekend shopping spree. These states impose fees on hospitals to cover the expenses of Medicaid expansion.

Minnesota, North Dakota and Virginia impose fees on providers. A number of states have resorted to “sin taxes” on cigarettes and alcohol, and/or work requirements to increase revenue and contain costs. (It should come as no surprise that work requirements reduce the number of people who apply for Medicaid in expansion states.)

Other states use general funds to fund Medicaid expansion, additional evidence that the federal gravy train is anything but a free ride.

The counter-argument is that expenses incurred as a result of Medicaid expansion are more than offset by reductions in uncompensated expense. Georgia, for example, gets to a 65 percent federal match for the existing Medicaid population.

The Kaiser Family Foundation states, “Studies show that Medicaid expansions result in reductions in uncompensated care costs for hospitals, clinics, and other providers.”

Clearly, the reductions are insufficient if states must address the increased costs of Medicaid expansion by imposing fees on hospitals and providers, levying other taxes or taking money from their general funds.

As is typical of many federal programs, standard Medicaid expansion is the most expensive way to get “free money.” Among the more effective options for providing lower-income people with health insurance are waivers, which allow for premium assistance or managed care programs. Arkansas, Iowa, New Hampshire and Pennsylvania have taken these Medicaid waiver approaches. Waivers allow states more flexibility in using federal funds to help cover the costs of coverage for previously uninsured people.

Most importantly, premium assistance and managed care programs provide participants with greater ownership of their health care, an investment in their health care funds, and continuity of coverage. If income rises above 138 percent of the federal poverty level, the recipient does not forfeit coverage or incur significant additional costs. That continuity eliminates gaps in coverage and encourages recipients to find a pathway out of poverty rather than incentivizing them to remain poor.

This commentary by Dave Emanuel, a Snellville City Council member, was written for the Georgia Public Policy Foundation. The Foundation is an independent, nonprofit think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (October 5, 2018). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.