Medicaid Expansion: A Quick Primer

In North Carolina, most news coverage on the Affordable Care Act (ACA), also known as Obamacare, has focused on the massive technical failures of the federal exchange website. But there is another healthcare issue that is heating up all over the country: Medicaid expansion. This article should help provide some background information for North Carolinians interested in learning more about the issue.

What is Medicaid?

Started in 1965, Medicaid is a government entitlement program that provides health insurance and health services for low-income people that fall under an eligible category. Those categories vary by state, but the most important diagnostic for eligibility is the federal poverty level (FPL).

A family of four with a combined annual income of $23,550 is considered to be at 100 percent of the FPL. However, it is possible to have an income higher than the federal poverty level and still be eligible for Medicaid.  For example, children under the age of 6 qualify for Medicaid coverage even if their family income is 200% of the poverty level ($47,100 for a family of four).

Why are people talking about Medicaid expansion?

In 2010, Congress passed the Patient Protection and Affordable Care Act. Also known as Obamacare, the Affordable Care Act (ACA) made huge changes to healthcare in the United States. The law itself is over 900 pages, with over ten thousand additional pages of associated regulations. As Speaker of the House Nancy Pelosi (D-CA) famously declared, “We have to pass the bill so that you can find out what is in it, away from the fog of controversy.”

One of the many provisions of the Affordable Care Act was a revised – and relaxed – set of criteria for Medicaid eligibility. The new requirement changed the eligibility for Medicaid to expand coverage to people with a household income of up to 138 percent of the federal poverty line. The new criteria also expanded Medicaid eligibility to childless adults. These changes, if enacted, would massively expand the number of people eligible for government entitlements. In an initial estimate, the Congressional Budget Office (CBO) projected that 13 million people would become eligible for Medicaid in 2014 under the Affordable Care Act.

Medicaid expansion hit a major snag, though. Only two years after the passage of the law, the Supreme Court ruled that it was unconstitutional to force states to expand Medicaid or else risk losing their existing Medicaid funding. This meant that states could decide whether or not they would expand Medicaid eligibility. Although the federal government promised to pick up 100 percent of the cost of Medicaid expansion for three years, only twenty-five states have moved to expand their programs.

What did North Carolina do about Medicaid expansion?

In March 2013, Governor McCrory signed Senate Bill 4, which rejected Medicaid expansion in North Carolina. Senate President Pro Tempore Phil Berger explained: “Too many people have been seduced by the lure of easy money from the federal government. They will promise anything and they do – often.”

Is Medicaid expansion a good idea?

It depends who you ask. North Carolina liberals argue that Medicaid expansion is a free lunch from the federal government. They say that expanded eligibility means that more low-income families will have health insurance, at no additional cost to the state through 2016.

But there is an overwhelming body of evidence that suggests that Medicaid expansion is a horrible idea:

• There’s no such thing as a free lunch. The federal government has promised to pay for Medicaid expansion for three years. But what happens after that? North Carolina has to start picking up the tab. After 2016, the state will have to pay for 10 percent of the cost. That may seem like a negligible amount, but as Michael Tanner of the Cato Institute has observed, “10 percent of a very large cost is still a very large cost.” What’s more, there is nothing to say that the federal government won’t renege on its commitment to pay 90 percent of the cost for the indefinite future. The federal government currently has a $17 trillion national debt. This is somewhat akin to your bankrupt uncle promising to pay for college – you better start saving.
• Medicaid expansion is fiscally irresponsible on the federal level. Going back to that $17 trillion national debt: it is absurd to argue that Medicaid expansion is “free federal money,” because we are paying for it as federal taxpayers. Medicaid spending is projected to grow exponentially (see graph below). It is reckless and irresponsible to assent to any policy that would plunge the country into even more crippling debt.

 

• Medicaid expansion gives the federal government even more power over the states. Because the federal government controls Medicaid funding, any increase in the size of the program will only serve to further erode federalism in the United States. Federalism is a crucial part of the Constitution and a fundamental safeguard of liberty.
• Medicaid expansion will not help the poor. There is a popular misconception that Medicaid helps poor people. It doesn’t. A groundbreaking study examined Medicaid expansion in Oregon, comparing outcomes for people who received coverage versus a control group that did not have health insurance. It found some limited benefits of Medicaid enrollment, like reduced rates of depression. But in terms of overall health outcomes, there was no difference between the Medicaid group and the control group in terms of blood pressure, cholesterol, diabetes, or obesity – all indicators that should have been readily improvable over the span of the study. If the goal of Medicaid is providing better health care to the poor, it is failing miserably.
• Medicaid expansion will increase healthcare costs.  Supporters of Medicaid expansion have argued that expanding Medicaid coverage would help save money because the formerly uninsured would no longer go to the emergency room for non-emergency situations. But the Oregon study concluded that Medicaid participants were actually more likely than non-insured people to go to the emergency room. Over the course of the study, there was a 40 percent increase in visits to the emergency room, and a 25 to 35 percent increase in total spending on enrollees.
• Medicaid expansion will cover people who can already afford health insurance. Although the program is intended to help Americans who are financially worst-off, Medicaid expansion would likely extend coverage to some young, healthy people who could already afford to buy health insurance at lower premiums. Because a limited number of health providers accept Medicaid patients, people who legitimately need assistance will have an even harder time getting access to care.
• Medicaid expansion will cause private insurance to become even more expensive. Medicaid underpays doctors – which means that providers have to increase their rates on privately insured patients to remain profitable.

That’s only a partial list of the problems caused by Medicaid expansion. Avik Roy of the Manhattan Institute co-authored a paper with Grace-Marie Turner of the Galen Institute that goes into more detail on the subject.

Conclusion

North Carolina showed considerable restraint and prudence in rejecting Medicaid expansion. Medicaid expansion would fail to achieve its intended effect of helping the poor. Instead, it would massively increase costs, crowd out services for the neediest recipients, and make the state complicit in the country’s fiscal suicide. As voices on the left clamor louder for Medicaid expansion, legislators must stay the course.