Medicaid Expansion: Cruel, Not Compassionate; Part 2

Expansion Would Cost Tens of Thousands of Jobs, Drive Up Healthcare Costs and Trap More in Poverty

In Part 1 of this article, we explored several of the negative consequences should North Carolina expand Medicaid per Obamacare. Part 2 will discuss still more damage that expansion could impose on the state, and conclude with several alternative policies and options that would better provide affordable coverage and care for low-income North Carolinians. 

 

Expansion Would Cost North Carolina Tens of Thousands of Jobs

Desperate because their past attempts to expand Medicaid have failed, liberal progressives a few years ago began advancing the “Medicaid expansion will create jobs” canard to try to broaden support for expansion of this costly entitlement.

Supporters were emboldened largely by two studies. One report, produced by George Washington University researchers, declared that North Carolina could create 43,000 jobs in five years under Medicaid expansion. That study was largely echoed by a January 2013 study produced by the North Carolina Institute of Medicine (NCIOM) that came to similar conclusions.

Small problem: The assumptions built into the studies claiming Medicaid expansion would create jobs don’t square with reality. And in fact, credible research and logic show that expansion would cost North Carolina tens of thousands of jobs.

The job growth claims in the studies are based on the state’s “drawing down” additional federal funds due to Medicaid expansion. As the GWU report describes, “Since most of the cost of a Medicaid expansion would be borne by the federal government, expansion would result in billions of dollars in additional federal funding flowing into North Carolina. These funds will initially be paid to health care providers, such as hospitals, clinics or pharmacies, as health care payments for Medicaid services.”

This income received by health care providers is then spent on suppliers (such as medicine, medical supplies, etc.) and in their community on goods and services such as groceries, clothes and movies. The increased economic activity, according to the theory, would create more jobs.

We’ll leave aside for now the negative impacts from our already deeply indebted federal government having to borrow billions more to fund the Medicaid expansion.

The fatal flaw in these studies is the methodology. In order to “draw down” federal Medicaid dollars, actual medical services need to be provided to Medicaid patients. It is only when doctors actually treat Medicaid patients that the federal government pays those providers for the services.

And this is where the methodology fails. As noted previously in Part 1, North Carolina’s Medicaid system is already overcrowded, with a drastically increasing number of patients chasing fewer doctors.

There is simply no capacity for doctors and other providers to treat an additional 630,000 Medicaid patients. And if you think this massive shift of patients into the Medicaid program will attract more doctors to become Medicaid providers, think again. Across the state, there is a general doctor shortage, and thus doctors currently not seeing Medicaid patients are already at their limits and thus would not have the capacity to take on Medicaid patients.

Indeed, a 2011 survey by the Association of American Medical Colleges found that only 15 states have fewer primary care physicians per capita than North Carolina.

As reported in 2014 by WRAL, “A survey this year by The Physicians Foundation found that 81 percent of doctors describe themselves as either over-extended or at full capacity, and 44 percent said they planned to cut back on the number of patients they see, retire, work part-time or close their practice to new patients.”

Such extreme supply constraints tell us that if North Carolina were to expand Medicaid, the newly enrolled would have great difficulty actually seeing a doctor. Coverage will not equal access.

If a new enrollee in the already overcrowded Medicaid program doesn’t have access to care, then there will be no services provided. With no service provided, no federal dollars are “drawn down” to Medicaid providers. Many Medicaid patients will either not be able to receive services, or be relegated to the emergency room – and ER’s are not ready to handle the influx of patients either (more on that below). The whole premise behind the studies purporting to show job creation is unsupportable.

But that’s not all. Research, and common sense, tell us that expanding Medicaid will also reduce participation in the workforce, resulting in a net loss of jobs.

Studies by the National Bureau of Economic Research, the Congressional Budget Office, and university economists all find that expanding Medicaid eligibility discourages work and is associated with a decrease of jobs. Based partly on this research, the Foundation for Government Accountability estimates Medicaid expansion could cost North Carolina up to 94,000 jobs.

Academic research on states that have expanded Medicaid finds Medicaid expansion causing decreases in employment as well.

 

Medicaid Expansion Would be Unaffordable 

Funding for the newly eligible Medicaid enrollees under expansion would be provided 100 percent by the federal government in the first three years, and phased down to 90 percent thereafter.

According to language in SB 290 and HB 858, the price tag for North Carolina’s proposed Medicaid expansion would be steep.

By FY 2018-19, the federal share for expansion is projected to be $3.5 billion per year, with the state portion amounting to $335 million.

But if the recent past is any indicator, the actual costs will be far higher than that. As reported in 2015 at OhioWatchdog.org: 

Expanding Medicaid to working-age Ohioans with no kids and no disabilities was supposed to cost $2.56 billion in its first year and a half. 

So much for that. 

Kasich underestimated the cost of the first 18 months of his Obamacare expansion by roughly $1.5 billion. Enrollment was almost 600,000 at the end of June, compared to Kasich’s projection of 366,000. 

Ohio’s Obamacare expansion has cost far more than expected because enrollment and per-member costs have both rocketed past expectations.

 

Similarly, expansion enrollment exceeded projections by 322 percent in California, by 276 percent in New York, and by 134 percent in Kentucky.

The state portion of expansion, according to the proposed legislation, would mostly be paid for by a hospital tax – a cost most likely passed along to patients.

Furthermore, there is no guarantee the federal government will cover its end of the costs as promised. With the national debt and unfunded liabilities exceeding $100 trillion, the wisdom of relying on federal funds is questionable. Indeed, any additional federal funds required to pay for North Carolina’s Medicaid expansion will necessarily add to the national debt.

Add to that the uncertainty over federal funding for Medicaid in federal budget proposals, and the reliance on such substantial federal support for expansion is on shaky ground at best. Even a small drop in federal support could impose substantial additional financial pressure on the state budget.

 

Medicaid Expansion Would Strengthen the Poverty Trap

Like so many government welfare programs, Medicaid expansion would serve to steepen the “welfare cliff.” This is an effect whereby – on the margins – people face losing valuable government benefits if they choose work. Accepting work, or more hours, or even a promotion, would actually make them financially worse off.

The net impact is more people deciding not to work for fear of losing the benefits, causing higher unemployment. Moreover, some people may choose not to pursue higher paying jobs that they may otherwise be qualified for because the higher income would render them ineligible for government benefits that are more valuable than the pay raise.

Such perverse incentives serve to trap people in poverty. When confronted with a decision that makes them financially worse off, many rationally choose against work or a higher paying job. Unfortunately, the longer they remain unemployed or opt to forgo a higher paying job due to these short-term decisions, the more difficult their prospects are for future career advancement.

This vicious cycle ends up trapping many people in poverty.

 

Medicaid Expansion Would Drive Up 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 (first referenced in Part 1 of this article) 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.

Moreover, a study published earlier this year in the Annals of Emergency Medicine journal concluded that emergency room “use per 1,000 population increased by 2.5 visits more in Medicaid expansion states than in nonexpansion states,” and that increases in such visits were largest for “states with the largest changes in Medicaid enrollment.”

Unfortunately, ER’s are not prepared for this new influx of Medicaid patients. A 2015 survey by the American College of Emergency Physicians found that “70% of member physicians believe their emergency department is not adequately prepared for potentially substantial increases in patient volume.”

New Medicaid patients are more likely to go to the ER than even the uninsured. Because they can’t find a primary care physician that will see them, Medicaid enrollees have no other options to seek care. And because someone else is paying most of the bill, Medicaid enrollees are insulated from the ER’s high costs, unlike the uninsured. Greater use of the more expensive ER drives up overall healthcare costs.

Also, Medicaid underpays doctors. Providers have to increase their rates on privately insured patients to remain profitable. As private insurance plans become more expensive, more people become uninsured, driving more and more of them to Medicaid. The vicious cycle is self-perpetuating.

 

The Conservative Alternative

Medicaid expansion is untenable.  It would produce negative effects on those it claims to help, drive up healthcare costs for all North Carolinians, and ultimately make healthcare unaffordable.

So, what are some preferable alternatives to ensure low-income North Carolinians have access to affordable medical care?

• Reform Medicaid to provide more and better options. Fortunately, state legislation passed in 2015 will do just that. The plan would change Medicaid from a fee-for-service program to one in which insurance companies are paid on a capitated per-person basis. Companies compete for Medicaid enrollees and offer differing coverage options, providing patients with more choice than the current one-size-fits all program. Another advantage is that risk of cost overruns would be shifted from the taxpayer to the insurance companies. Provider networks would also be formed, to ensure more complete, patient-centered care. The plan follows similar reforms in Florida, Louisiana and Kansas. The Foundation for Government Accountability reports that Florida’s reforms resulted in $1 billion annual savings, with Louisiana enjoying savings of 3.5 percent and Kansas 5 percent. North Carolina’s DHHS projects about $400 million in savings in the first five years of implementation.

• Revise long-term care options to curb costs. Long-term care is one of the largest cost drivers of North Carolina’s Medicaid system. Nursing facility care for the elderly costs the Medicaid program nearly $1 billion per year, virtually the same amount as total inpatient costs and only behind prescription drugs and physician payments as the largest Medicaid expenditure. Some ways to curb long-term costs include:
  • Lower the exemption threshold. Medicaid exempts significant amounts of wealth and assets when calculating eligibility. Doing so would ensure that asset-rich people don’t crowd out care from the most needy.
  • Educate citizens about the state income tax credit for the purchase of private long-term care insurance. Reenacted in 2007, this credit amounts to 15 percent of the premium costs of long-term care. The credit may not exceed $350 and applies to married couples earning less than $100,000, or single filers earning less than $60,000. The current credit could be improved by increasing it to 20 percent (as in New York), or increasing the maximum amount allowed to $500 (as in Maryland). Increasing the tax credit would be a more affordable option than paying for future long-term care costs.

• Create “flexible benefits” insurance – i.e., customized plans that offer families coverage that best suits their needs. Low-income residents who don’t qualify or prefer not to enroll in Medicaid need affordable insurance options. In the health insurance industry, state governments each have a set of services that insurance providers must include in all plans. These state mandates are in addition to the services required by Obamacare. North Carolina imposes 56 such mandates, more than all but 15 states in the country. Mandates add to the already skyrocketing cost of health insurance. NC could pass legislation to allow for flexible plans that allow customers to select coverages that best meet their individual needs. Such options could put health insurance premiums once again within reach of many more North Carolinians.
  • Basic, catastrophic insurance plans would be especially attractive to young people with few health needs. Drawing in more young, healthy people into the state’s health insurance pool would help drive down premiums for everyone. 

• Permit families to purchase less expensive, out-of-state health insurance plans. Another reason health insurance is so expensive in North Carolina is because the state does not permit families and individuals to purchase out-of-state health insurance. Allowing access to out-of-state plans will not only enable more North Carolinians to purchase insurance, but also lead to lower prices for in-state plans because the expanded market would end the state’s insurance monopoly. Unfortunately, because of minimum coverage requirements under Obamacare, there is less price variance on health insurance between states. However, these changes would still offer some premium relief that would certainly grow if Obamacare is repealed.