Expanding Medicaid Plans is a Costly Mistake for States

COMMENTARY Health Care Reform

Expanding Medicaid Plans is a Costly Mistake for States

Nov 10th, 2012 2 min read
Nina Owcharenko Schaefer

Senior Research Fellow, Health Policy

Nina Owcharenko Schaefer is well known as a champion of patient choice and robust competition in America’s health insurance markets.

States are already struggling to pay their Medicaid bills. Why put taxpayers on the hook to pay even more?

Medicaid is the single biggest item in state budgets today. It consumes, on average, 23 percent of state dollars spent, pinching funds for other high-priority functions - such as education, transportation and emergency services.

Yet expanding Medicaid was a central tenet of the Patient Protection and Affordable Care Act. It required states to open their program to all individuals earning less than 138 percent of the federal poverty level. The goal was to reduce the number of uninsured - by dumping 17 million Americans onto the Medicaid rolls.

Such a huge expansion wouldn't come cheap, and cash-strapped states grumbled that they couldn't possibly afford it. So the architects of Obamacare decided to take a carrot-and-stick approach to get the states to play ball.

The carrot: We, the feds, will pick up 100 percent of your expansion costs for three years, and lesser percentages thereafter. The stick: If you don't expand your program, we'll cut off all your federal Medicaid funds.

The fact that the authors of Obamacare felt the need to threaten states with total defunding tells you that they knew many states would resist expanding their programs - even with 100 percent federal funding.

Why? For starters, many state officials are leery of federal promises to pay program costs in perpetuity.

Such skepticism is warranted. Washington has rung up a $16 trillion debt and is running more than $1 trillion in the red annually, even without any of the costs associated with the health-care law.

Where will it get the money to make good on this promise? And will future administrations honor this promise, no matter what? State officials also worry about how such a massive expansion of their Medicaid programs will affect the quality of care available to their poorest citizens.

States are already having difficulty finding enough physicians willing to accept Medicaid patients, largely because of the program's low reimbursement rates. Expanding patient rolls by a third will only exacerbate this problem.

Here too, Obamacare tries to hoodwink the states. The states are required to increase pay to Medicare levels for primary-care physicians. The federal government picks up the tab, but only temporarily.

In 2015, states will either have to find the money to replace the federal dollars or let primary-care payments drop back down again. And if a state decides to keep the primary-care doctor rates up, guess what? Without doubt a flood of non-primary-care doctors and other health care providers will argue - wait, what about us?

To persuade doctors to start accepting Medicaid patients or increase their already swollen caseloads, states will have to sweeten the pot considerably. Cha-ching! And states unable to sweeten the pot sufficiently will see wait lists get longer and longer, and the quality of care decline.

"If a deal sounds too good to be true, it probably is." That adage certainly applies to Obamacare's promise of "free" expansion of Medicaid for the states. Thankfully, the Supreme Court struck down the law's "stick," ruling that threatening to yank all federal funding to states that refused to expand their programs was unconstitutionally coercive.

Now, states don't have to walk the plank on Medicaid expansion. And they shouldn't.

Medicaid is a troubled program than can't be sustained in its current form, much less on the grander scale envisioned by Obamacare advocates. What's needed is not expansion, but reform - a complete makeover of the program that gives the working poor access to private health insurance like the vast majority of Americans enjoy today and restores Medicaid to a true safety net to meet the needs of the most vulnerable in society.

Nina Owcharenko is director of the Center for Health Policy Studies at The Heritage Foundation.

First appeared in Press of Atlantic City.

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