March 5, 2013 | Issue Brief on Health Care
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. Due in part to low reimbursement, one in three doctors refuses to accept new Medicaid patients. Despite access issues, Medicaid spending continues to grow. In 2010, total federal and state spending on Medicaid exceeded $400 billion.
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). 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. 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:
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. 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.
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.
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.
Setting Good Policy
There are several recommendations that the states and Congress could adopt to help mitigate the crisis that Obamacare has exacerbated:
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.
Kevin Dayaratna, “Studies Show Medicaid Patients Have Worse Access and Outcomes than the Privately Insured,” Heritage Foundation Backgrounder No. 2740, November 7, 2012, http://www.heritage.org/research/reports/2012/11/studies-show-medicaid-patients-have-worse-access-and-outcomes-than-the-privately-insured.
Sandra L. Decker, “In 2011 Nearly One-Third of Physicians Said They Would Not Accept New Medicaid Patients, But Rising Fees May Help,” Health Affairs, Vol. 31, No. 8 (August 2012), pp.1673–1679, http://content.healthaffairs.org/content/31/8/1673.abstract (accessed March 4, 2013).
Centers for Medicare and Medicaid Services, 2011 Actuarial Report on the Financial Outlook for Medicaid,March 16, 2012, p. 19, http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/MedicaidReport2011.pdf (accessed March 4, 2013).
An estimated 66 million people are below 138 percent of the federal poverty level.
Centers for Medicare and Medicaid Services, National Health Expenditure Projections 2011–2021, Table 17, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf (accessed March 4, 2013).
Edmund F. Haislmaier and Brian Blase, “Obamacare: Impact on the States,” Heritage Foundation Backgrounder No. 2433, July 1, 2010, http://www.heritage.org/research/reports/2010/07/obamacare-impact-on-states.
Drew Gonshowroski, “Obamacare and the Medicaid Expansion: How Does Your State Fare?” The Heritage Foundation, The Foundry, March 5, 2013, http://blog.heritage.org/2013/03/05/obamacare-medicaid-expansion-state-by-state-charts.
Edmund F. Haislmaier, “Deconstructing State ‘Savings’ from Expanding Medicaid,” Heritage Foundation Commentary, September 25, 2012, http://www.heritage.org/research/commentary/2012/09/deconstructing-state-savings-from-expanding-medicaid.
Mary Mayhew, testimony before Florida Senate Select Committee on Patient Protection and Affordable Care Act, February 11, 2013, http://www.flsenate.gov/PublishedContent/Committees/2012-2014/SPPA/MeetingRecords/MeetingPacket_2026.pdf (accessed March 4, 2013).
National Governors Association and National Association of State Budget Officers, “The Fiscal Survey of the States,” Fall 2012, p. 26, http://www.nasbo.org/sites/default/files/Fall%202012%20Fiscal%20Survey_Final%20Version.pdf (accessed March 4, 2013).
J. D. Foster, “Tax Policy: Obama Is Still Wrong on Tax Rates,” Heritage Foundation Issue Brief No. 3781, November 26, 2012, http://www.heritage.org/research/reports/2012/11/tax-policy-obama-is-still-wrong-on-tax-rates.
“Tax Revenue Devoured by Medicare, Medicaid, and Social Security in 2045,” Heritage Foundation Federal Budget in Pictures, http://www.heritage.org/federalbudget/entitlements-historical-tax-levels.
David Lieb, “Missouri Senators Cite Credit Concerns About Medicaid,” The Kansas City Star, February 11, 2013, http://www.kansascity.com/2013/02/11/4061211/missouri-senators-cite-credit.html (accessed March 4, 2013).
States could adapt and modify existing frameworks, such as Healthy Indiana, as a stand-alone option. Merrill Mathews and Mark E. Litow, “Bad Medicaid Program Gets Worse Under Obamacare,” Investor’s Business Daily, February 26, 2013, http://news.investors.com/ibd-editorials-viewpoint/022613-645817-medicaid-still-out-of-control-despite-obamacare.htm (accessed March 4, 2013).