State Medicaid Expansion Represents Bad Welfare and Health Policy

COMMENTARY Health Care Reform

State Medicaid Expansion Represents Bad Welfare and Health Policy

Feb 19th, 2013 2 min read
Edmund F. Haislmaier

Senior Research Fellow

Ed is an expert in health care policy and frequently is asked to help lawmakers design and draft reforms to the health systems.

The first reason states should opt out of the expansion is it's bad welfare policy.

While typically considered a health-care program, Medicaid is also America's largest means-tested welfare program. A core principle of welfare policy should be that able-bodied, non-elderly adults receive public assistance only if they are working, preparing for work or actively seeking work. There is no such requirement in the Medicaid expansion.

In fact, 82% of the individuals eligible for coverage under the expansion are working-age adults without dependent children. To expand welfarelike benefits with no work or behavioral requirements to a population of primarily young, childless adults is simply a prescription for achieving Western European levels of social and economic atrophy.

Furthermore, anyone who says Medicaid is the best coverage solution for impoverished Americans is ignoring the reality that states that already have expanded Medicaid eligibility tend to pay for it by cutting provider reimbursement rates. Lower rates means fewer physicians willing to accept Medicaid patients. That translates into decreased access and poorer-quality care. It is also a big reason why Medicaid patients use hospital emergency departments at roughly twice the rates of both the uninsured and Medicare patients, and four times the rate of the privately insured.

Disservice to Society

Shoving more people into a program with substandard care is a disservice to the recipients and to society. The expansion would extend coverage to those with incomes up to 138% of the Federal Poverty Level. Why not 137%? Or 139%? A difference of a couple hundred dollars means some are relegated to a system with poor quality, while others are subsidized to buy private coverage. Why not offer private coverage to those below the line as well? They can receive tax credits—income, payroll or both—or be issued a voucher.

While the Supreme Court ruled the expansion must be voluntary for the states, Congress hasn't yet clarified exactly what that means. One possible interpretation would be to classify the newly eligible expansion population as an "optional population." That way states would be permitted, but not required, to cover those individuals and each state could set its own eligibility level.

No 'Free' Lunch

As for the notion that the expansion is somehow "free," the budget crisis has shown that new or marginal federal spending—and the expansion is both—are prime candidates for the ax. Thus, a state that opts in could be left with some hefty bills if federal Medicaid funding is cut in the future.

Certain projections that say expansion is budget-neutral or even fiscally positive for states depend on some debatable assumptions about state savings and increased tax revenues. But even with the favorable assumptions, the studies project the expansion becomes a net cost to the states in about 10 years.

If those projections prove too optimistic, costs will exceed savings even sooner. For example, one important assumption is that covering more of the currently uninsured will allow states to reduce their supplemental payments to hospitals and clinics for uncompensated care costs.

While that certainly makes sense in theory, experience (such as in Massachusetts) and political realities offer reasons to doubt that those savings will actually materialize.

-Mr. Haislmaier is a senior research fellow at the Heritage Foundation.

First appeared in The Wall Street Journal.

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