One issue in the Baucus health care bill has not received the
attention it deserves: Half of the reduction in the uninsured will
result from the enrollment of millions of Americans in
Expanding Medicaid is not reform. Americans across the political
spectrum who are being promised health reform will, if Congress
gets its way, be stunned to find themselves in a welfare office
applying for Medicaid and then searching desperately for doctors
who will accept their Medicaid card.
Congress is proposing the single largest expansion of an
entitlement program since Medicare and Medicaid were created in
1965. Medicaid does not have enough providers in the existing
program; adding more people to a flawed system would only compound
90 Million People on
Under the current baselines for Medicaid and the State
Children's Health Insurance Program (SCHIP), there will be 76
million individuals served by these programs for at least some part
of the year in 2019. Under the Senate Finance Committee proposal,
the number on Medicaid/SCHIP will top 90 million.
The majority of these individuals will be young and healthy.
Keeping them on welfare rolls will shift even more costs to
individuals and families buying health insurance, as doctors and
hospitals recoup their losses from Medicare/SCHIP by charging more
to the privately insured. In effect, the congressional policy seems
to be to expand dependency by discriminating against individuals
based on their income.
Congress will also create new inequities among working families.
Individuals covered through Medicaid, the new exchanges, and
current employer coverage would be paying significantly different
amounts for their health coverage.
Senate Finance Reverses Course
Under Senator Max Baucus's (D-MT) original proposal, the
Congressional Budget Office (CBO) estimated that 11 million
individuals would be added to Medicaid/SCHIP by 2019 at a federal
cost of $287 billion. After the Baucus plan was amended, CBO
estimated that 14 million individuals would be added to
Medicaid/SCHIP at a federal cost of $345 billion.
CBO has not released its assumptions about the impact on
Medicaid enrollment due to other factors such as "crowd out" (the
substitution of public funds for private expenditures and loss of
private coverage) and how employers will treat dependents in
reaction to the employer provisions in the legislation. Thus, the
increased Medicaid/SCHIP enrollment is likely understated, as has
historically been the case.
Under the original Baucus plan, Medicaid eligibility was
expanded to non-disabled adults (childless adults as well as
parents of children on Medicaid) with income up to 133 percent of
the federal poverty level (FPL). However, individuals with
income between 100 percent and 133 percent of the FPL would have
also been eligible for the new subsidies and, beginning in 2014,
could have chosen to receive coverage through the exchange rather
than Medicaid. In effect, the maintenance-of-effort requirement on
states would drop back to 100 percent of the FPL.
SCHIP eligibility would have been increased to 250 percent FPL,
but subsidies would have been provided through the exchange. States
were given additional federal funding through enhanced match rates.
But even with the additional federal funding, Medicaid expansion
would cost states an estimated $37 billion.
In the committee's markup, states would be allowed to raise
Medicaid eligibility above 133 percent FPL, and SCHIP is continued
to 2019. States could expand SCHIP eligibility to
higher income levels and would receive new enhanced match rates.
Current law benefits and cost-sharing limits would be continued.
Until actual legislative language is available, it is unclear
whether use of the exchange is a state choice or an individual
choice or how SCHIP financing through 2019 will be provided.
Most disturbing, however, is why the Finance Committee reversed
course and put more people into Medicaid and SCHIP rather than
covering them through tax credits and allowing them to get private
health insurance if they want it. In truth, the committee probably
elected to expand Medicaid not because it is better but because it
is cheaper--at least on paper.
Medicaid pays providers 20-25 percent less than does the private
sector, forcing doctors and hospitals to subsidize Medicaid through
lower rates. This deters providers from participating in the
program, creating a lack of access that itself is a form of
rationing. Of course, putting more people into Medicaid will
ultimately make the access problem even worse.
In addition, the pharmaceutical manufacturers who thought they
had cut a deal with the White House will find themselves paying
additional rebates to Medicaid.
Even More Expansion?
As the Obama Administration negotiates the final legislative
package behind closed doors with the House and Senate leadership,
taxpayers can rest assured that final decisions on Medicaid will
not be resolved until the last minute. If Congress needs to find
additional "savings" for the overall legislative package, it may do
so by expanding Medicaid even more, perhaps for persons with
incomes up to 150 percent of FPL ($16,245 annually).
Although final decisions have not been made, states have already
been warned by congressional staff of the potential to put millions
more onto Medicaid beyond the current estimates. How much federal
support will be available through enhanced match rates is also up
in the air. The cynical exercise of pitting state against state in
a formula fight should be a wake-up call to the governors. It is
yet another indication that, as a matter of policy, the legislation
is headed in the wrong direction.
Who "Belongs" on Medicaid?
Medicaid was originally created to provide access to health care
for families on welfare. Its mission was expanded over time through
federal mandates and state options. An expansion to all individuals
below 150 percent FPL would introduce a new group of young, healthy
individuals onto government dependency.
Individuals at 150 percent FPL includes millions who have never
been considered "poor" or in need of government assistance.
According to the Census Bureau, there are 6.4 million individuals
age 18-24 years old living on their own. More than half have income
below 150 percent FPL. But the percentage of individuals age 25-34
below 150 percent FPL drops to 24.3 percent.
Do college students and part-time workers really belong on
Medicaid? Putting them into Medicaid erodes the sound policy
objective of stabilizing the insurance market that would have
occurred if these young, healthy lives had been added into the
private insurance pool. The health insurers who thought the young,
healthy population would help stabilize costs for them will instead
lose many of them to Medicaid.
Lost State Flexibility
The burden of expanding Medicaid will also fall on the states.
The CBO estimates that the Finance Committee plan will cost states
$33 billion over 10 years. Governor Phil Bredesen (D-TN) warns that
costs are likely underestimated and could cost his state $3
States also face an erosion of their authority to manage their
Medicaid programs, as Congress is adding new federal mandates to
cover certain benefits and conform their programs to federal
standards. The true cost to taxpayers in the states will become
apparent only over time.
Many state officials cannot afford their current Medicaid
programs; they certainly cannot afford to add 14 million more
individuals. Medicaid is already crowding out resources for other
state and local priorities such as education, child welfare, public
health, and investment in transportation systems and
infrastructure. More money for Medicaid means less money for these
Expanding Medicaid Is Not Reform
The Baucus bill will not lower the cost of health care as the
American people were led to believe it would. Budget constraints
are forcing more people into Medicaid, with the final number still
unknown. Simply forcing more people into Medicaid is not reform.
Expanding Medicaid will ultimately shift even more costs to
providers and the private sector. It is a giant step backward from
what was promised, and it comes at the cost of everything else.
In June, President Obama told Senate Democrats, "As we move
forward on health care reform, it is not sufficient for us simply
to add more people to Medicare or Medicaid." Unfortunately, that
is precisely what Congress is going to do with the Baucus bill.
Smith is Senior Fellow in the Center for Health Policy Studies
at The Heritage Foundation.