- Medicaid began as state/federal program to help the neediest among us.
- The Obama Administration sought to cover the uninsured by requiring states to expand Medicaid. The Supreme Court disagreed and ruled that states have the option to expand Medicaid on their own.
- The new federal threshold (138 percent of federal poverty rate) changes the fundamental focus of Medicaid and places thousands of able-bodied individuals onto Medicaid rolls.
- States that have expanded Medicaid have had higher costs than anticipated, longer wait times to access care and a reduction in labor force participation.
The loss of GOP supermajorities in the State House and Senate coupled with an emerging coalition of Democrats and pro-expansion Republicans has reignited the debate over Medicaid expansion in North Carolina.
Over the last several years, Republican supermajorities in the House and Senate helped conservatives defeat efforts to expand Medicaid. However, the election of Democratic Gov. Roy Cooper in 2016 changed the equation. Gov. Cooper signaled his support to expand Medicaid early on in his administration when he said,
“North Carolina will miss out on more jobs and better health care without Medicaid expansion and it’s frustrating and disappointing that we’re having to fight our own legislature in court to get it done. Tax dollars already paid by North Carolinians are funding Medicaid expansion in other states and we want to bring that money back home to work for us here.”[i]
Escalating costs, harmful impacts on the healthcare system and potentially disastrous consequences to state finances are some of the main reasons for Republican opposition. The fears of Republican lawmakers that Cooper would act unilaterally to expand Medicaid without the approval of the legislature helped propel a suit against the governor in federal court. The case was later dropped in the summer of 2017 when Republican leaders learned that Cooper never filed plans to expand Medicaid with the Department of Health and Human Services. Still, the battle lines were drawn and the war over Medicaid expansion will likely resume this spring.
So, what is Medicaid expansion and why is it such a contentious issue? A review of Medicaid’s history and the questions that emerge out of that history can help us better understand what’s at stake in the current debate and how to move forward.
Medicaid: A Brief History
The most important provisions of the Social Security Amendments of 1965 created two programs, Medicare and Medicaid.[ii] The original legislation provided health insurance for the elderly as well as poor families and was created in response to growing demands inside the Democratic Party for greater federal involvement in helping states care for the poorest residents. Medicaid has grown to cover eligible children, pregnant women, parents, childless adults, seniors and disabled, populations “unable to support” their own health care needs. Today 19 percent of the U.S. population is covered by Medicaid. In North Carolina Medicaid covers 18 percent of the population.[iii]
Medicaid was created as a joint federal and state program and the program was optional for states. North Carolina formally adopted Medicaid in January 1970. Arizona was the 50th and last state to adopt Medicaid in 1982. Medicaid is a means-tested program. Recipients must be U.S. citizens or qualified non-citizens, and may include low-income adults, their children, and people with certain disabilities.
While states must follow federal guidelines, states have flexibility in administering their programs. States determine eligibility requirements and the Medicaid services they will provide. Because of the flexibility, there is significant variation among the states in the Medicaid services offered as well as the spending levels. Medicaid costs are shared between the federal government and the states. In Fiscal Year 2017, the Federal government, on average, covered about 62 percent of all Medicaid spending in the states. while the states picked up the remaining 38 percent of all costs.[iv] The level of federal funding is tied largely to the incidence of poverty. States with higher poverty rates receive a higher percentage of federal funding than states with lower levels of poverty. For example, the federal government covers 74.7 percent of Medicaid spending in Mississippi, but only 50.1 percent in Virginia. In North Carolina, the federal government covers 67 percent of all Medicaid spending.[v]
Since its inception in 1965, the cost of Medicaid and the scope of the populations it serves have expanded significantly. Medicaid’s initial budget (1966) was $1.3 billion.[vi] By 2017 Medicaid spending in the United States totaled $576.6 billion.[vii] Within the next decade, estimates are that Medicaid spending will top $1 trillion.[viii] That same rapid growth was evident in North Carolina. In the program’s first year of operation, Medicaid expenditures totaled $94 million.[ix] By 2017, Medicaid expenditures had ballooned to $13.5 billion. Today there are approximately 2 million Medicaid recipients in North Carolina. Spending totals about $13.5 billion, or about $6,750 per recipient.[x]
Numerous factors contributed to the growth of Medicaid. Some of the major factors can be found in the chart below. Moreover, Supreme Court decisions mandated that Medicaid must pay for services rendered to Medicaid-eligible disabled children.[xi]
Source: Medicaid in the United States, Medicaid in North Carolina, November 2018, Kaiser Family Foundation
Coverage of long-term care for elderly and disabled patients has also contributed to Medicaid cost increases. Nursing home care has experienced some of the highest increases in spending. Medicaid covers the largest share – almost 40 percent of nursing home bills in the nation. The program is expected to pay half of all nursing home bills by 2026.[xii]
The Budget Reconciliation Agreement of 1990 expanded Medicaid coverage to children age 6 through 18 whose families earn incomes at or below 100 percent of the Federal Poverty Line.[xiii]
In 1997, legislation was passed to offer health insurance to children of families whose income was too high to qualify for traditional Medicaid Programs. CHIP (Children’s Health Insurance Program) was developed to address those needs. Since then the program has experienced tremendous growth. In 1998 — the first year of the program, over 660,000 children enrolled in CHIP. By 2001, the number expanded to 4.5 million Today estimates are that over 9.4 million children are enrolled in CHIP.[xiv]
Passage of the Affordable Care Act in 2010 (ACA), signaled yet another significant expansion for Medicaid.[xv] ACA promised to make healthcare a reality for all Americans. The Obama administration’s plan was to have half the uninsured gain access through marketplace exchanges; the other half would become eligible through the expansion of Medicaid by the states. On first glance, it appeared that ACA gave states the option to expand Medicaid programs. However, the law specifically required states to either allow all residents with incomes below 138 percent of the federal poverty line (FPL) to enroll in Medicaid, or to decline expansion and lose all their Medicaid funding. Since states really had no choice, the legislation was essentially a mandate to the states to expand eligibility to all residents with incomes below 138 percent of the FPL.
Some states cried foul and challenged the rule in 2012. In NFIB v. Sebelius the United States Supreme Court upheld ACA’s constitutionality but gave each state the latitude to decide whether to participate in Medicaid expansion.[xvi] Specifically, the court removed ACA’s penalty for not expanding Medicaid. So now states are free to expand, without facing huge penalties if they decide to opt out.
Thirty-six states have now expanded Medicaid. Earlier this year voters in Idaho, Nebraska and Utah, approved ballot measures in each of their states to expand Medicaid.[xvii] Fourteen states — including North Carolina —have refused to expand Medicaid.
If states choose to expand Medicaid, the federal government will pay almost 100 percent of the costs over the next few years of those who are newly enrolled in Medicaid up to the federal standard of 138 percent of FPL. After 2020 the federal share will ratchet down to about 90 percent. If states don’t enroll up to the federal 138 percent standard then states would only receive the normal federal matching rate, which on average is about 60 percent – not the full 90 percent.[xviii]
The decision to expand Medicaid is a significant decision with massive implications for individuals and taxpayers of North Carolina. The decision should not be taken lightly. In choosing to not adopt Medicaid, North Carolina has had a front row seat in observing how expansion has played out in other states. Lawmakers would do well to review this history as well as the major questions which emerge from any discussion on Medicaid expansion. These include:
Will Medicaid expansion weaken the safety net and impact the labor force?
A 2012 study by the Urban Institute estimated that nationally, about 4 out of every 5 newly eligible recipients for Medicaid would be working age adults with no dependent children. In North Carolina, that ratio is closer to 3 out of every 4 newly eligible adults.[xix] The most recent legislation to expand Medicaid was introduced this week, and bill sponsors estimated that expansion would aHence, about 375,000 individuals would be able-bodied, childless adults[xx].
Such developments raise important questions: Will the influx of able-bodied patients crowd out resources for the truly needy? Will the expansion create a new class of recipients who have been disincentivized to work? Will such policies alter lifetime earnings and shrink the labor force?
How can North Carolina expect to contain ever-rising Medicaid costs?
Medicaid expansion costs have exceeded most cost projections in expansion states by about 50 percent. Ohio underestimated costs by $1.5 billion in the first few months of expansion. In Illinois, $800 million. In Kentucky, $1.8 billion. Washington State increased its biennial budget by $2.3 billion just to deal with expansion costs.[xxi] Add Virginia to the list of states that are struggling with balancing enrollments and Medicaid budgets.[xxii] Why should North Carolina expect conditions to be different? What can North Carolina do about Medicaid’s rampant fraud problem (2015 GAO report estimated Medicaid fraud at $29 billion[xxiii]) and resistance to cost saving measures?
Does Medicaid expansion improve healthcare?
The goal of Medicaid expansion is to provide healthcare coverage to those in need. The number of Medicaid patients in North Carolinas has increased from about 1 million in 2003 to 2.1 million today. The latest Medicaid expansion proposal in North Carolina would add another 500,000 people onto Medicaid patient rolls. Brian Balfour of the Civitas Institute recently pointed out that North Carolina added nearly a million new Medicaid patients at a time when the number of physicians serving Medicaid patients declined 28 percent from 2003 to 2016[xxiv]. Furthermore, a 2012 article in Health Affairs found that about a fourth of North Carolina physicians will not even take new Medicaid patients.[xxv] How do you ensure coverage equals access?
Can we afford Medicaid Expansion?
According to estimates from a 2017 proposed Medicaid expansion bill, Medicaid expansion would cost North Carolina an additional $341million the first year and even more when the federal match declines to 90 percent. As pointed out previously, actual costs will almost assuredly be significantly more.
How do we know that the Federal government will continue to cover costs as promised, especially when full and partial Medicaid expansion continues to add more costs to a federal government already saddled with debt and unfunded liabilities totaling $100 trillion?[xxvi]
All federal dollars come with a cost. Will Medicaid expansion shift more healthcare policymaking from the governor or legislature to the federal bureaucracy? What opportunities or policy priorities does additional funding for Medicaid force North Carolina to do without?
Are there workable alternatives to Medicaid expansion?
What other options exist to providing affordable insurance to high-need individuals? Are there opportunities to provide flexible insurance options to families and low-income individuals that better fit their needs? Is managed care an option for holding down the costs of long-term care? Can more stringent fraud enforcement and policy changes make Medicaid efficient and less prone to waste?
The Road Ahead
Is Medicaid expansion the best option for serving those in need? History tells us that Medicaid was designed to help states serve those populations, but over time those populations expanded.
Today Medicaid covers 19 percent of the US population and 18 percent of residents in North Carolina. The lack of cost controls, and steady expansions in benefits and eligibility have led to unsustainable increases in costs and enrollments on federal and state budgets.
In 2010, the Obama Administration introduced the Affordable Care Act to provide health insurance to all Americans. To make that a reality the Obama administration attempted to require the states to expand Medicaid to populations at the federal standard. The court disagreed and gave states the option of choosing to expand Medicaid in their states. To date, 36 states have expanded. Fourteen states — including North Carolina — have not.
Our nation has demonstrated a deep compassion toward the needy among us. Medicaid was designed to help serve that need. Medicaid expansion was specifically designed to provide coverage to individuals who fall between coverage gaps and cannot get insurance elsewhere. Expansion may have been propelled by compassion, but we cannot ignore the cost to freedom. Medicaid stunts individual freedom and distorts healthcare pricing. Caring for the neediest among us is an important obligation. Needy however has now been broadly defined as anyone without health insurance. Still there are other issues. Medicaid expansion will shrink the labor force, limit access to healthcare and jeopardize state and local budgets. These are the concerns our legislators must answer, to properly address the issue of Medicaid expansion. It’s an important and timely topic. And also, a responsibility lawmakers owe to North Carolina taxpayers as well as the neediest among us.
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[i] Governor Cooper Issues Statement on Medicaid Expansion, Office of the Governor, Roy Cooper, January 16, 2017.
[ii] Public Law 89-97. Available online at: http://www.legisworks.org/GPO/STATUTE-79-Pg286.pdf
[iii] Medicaid in the United States, Medicaid in North Carolina, Fact Sheets, Henry J. Kaiser Family Foundation. Available online at: https://www.kff.org/interactive/medicaid-state-fact-sheets/?utm_campaign=KFF-2018-September-Medicaid-Fact-Sheets-U.S.-Health-Care&utm_source=hs_email&utm_medium=email&utm_content=2&_hsenc=p2ANqtz–RUR2Tqu
[iv] Federal and State Share of Medicaid Spending, Kaiser Family Foundation, Available online at: https://www.kff.org/medicaid/state-indicator/federalstate-share-of-spending/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
[v] Federal and State Share of Medicaid Spending, Kaiser Family Foundation, Available online at: https://www.kff.org/medicaid/state-indicator/federalstate-share-of-spending/?currentTimeframe=0&selectedRows=%7B%22states%22:%7B%22north-carolina%22:%7B%7D%7D%7D&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
[vi] Medicaid Spending: A Brief History, John D. Klemm Ph.D., Available online at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/HealthCareFinancingReview/downloads/00fallpg105.pdf
[vii] Medicaid in the United States, Medicaid in North Carolina, Fact Sheets, Kaiser Family Foundation, November 2018 Available online at http://files.kff.org/attachment/fact-sheet-medicaid-state-US
[viii] Medicaid spending to surpass $1 trillion in next decade; Actuary., September 20, 2018, Bloomberg.com. Available online at: https://news.bloomberglaw.com/health-law-and-business/medicaid-spending-to-surpass-1-trillion-in-next-decade-actuary
[ix] An Annual Report for Low Income Residents in North Carolina, 1979-80, page 6, North Carolina Department of Human Resources, Division of Medical Assistance, Available online at: https://files.nc.gov/ncdma/documents/Reports/Annual-Reports/Medicaid-Annual-Report-SFY-1979-80.pdf
[x] Medicaid Spending in North Carolina, Ballotpedia.com. Available online at: https://ballotpedia.org/Medicaid_spending_in_North_Carolina
[xi] Olmstead v. L.C.: The Interaction of Americans with Disabilities Act and Medicaid, The Kaiser Family Foundation, June 2004. Available online at: https://kaiserfamilyfoundation.files.wordpress.com/2013/01/olmstead-v-l-c-the-interaction-of-the-americans-with-disabilities-act-and-medicaid.pdf
[xii] Nursing Home Bills are Swamping Medicaid, July 29,2016 Money Magazine. Available online at: http://money.com/money/4427532/long-term-care-medicaid-costs/
[xiii] Public Law 101-508, November 5, 1990, 101st Congress. Available online at: https://www.govinfo.gov/content/pkg/STATUTE-104/pdf/STATUTE-104-Pg1388.pdf
[xiv] Children’s Health Insurance Program. Medicaid.gov. Available online at: https://www.medicaid.gov/chip/index.html. Also see, Total Number of Children Ever Enrolled in CHIP Annually, Kaiser Family Foundation. Available online at: https://www.kff.org/other/state-indicator/annual-chip-enrollment/?activeTab=graph¤tTimeframe=0&startTimeframe=19&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
[xv] Compilation of Patient Protection and the Affordable Care Act. U.S. House of Representatives. Available online at: https://www.hhs.gov/sites/default/files/ppacacon.pdf
[xvi] NFIB v Sebelius, Legal Dictionary.com. Available online at: https://legaldictionary.net/national-federation-independent-business-nfib-v-sebelius/
[xvii] Medicaid Coverage in Your State, healthinsurance.org. Available online at: https://www.healthinsurance.org/medicaid/
[xviii] Medicaid Financing How Does It Work and What are the Implications? Kaiser Family Foundation. Available online at: https://www.kff.org/medicaid/issue-brief/medicaid-financing-how-does-it-work-and-what-are-the-implications/
[xix] Opting in to the Medicaid Expansion under the ACA, Urban Land Institute, 2012. Available online at: https://www.urban.org/research/publication/opting-medicaid-expansion-under-aca
[xx] Close the Medicaid Coverage Gap, House Bill 5. Introduced Jan. 30, 2019. Available online at: https://www.ncleg.gov/BillLookUp/2019/H5
[xxi] A Medicaid Expansion Offer the States Should Refuse, John Daniel Davidson, National Review January 21, 2016.
[xxii] Medicaid Expansion busts enrollment estimates. Fredericksburg.com. Available online at: https://www.fredericksburg.com/opinion/editorials/editorial-medicaid-expansion-busts-enrollment-estimates/article_ab84c215-1f5a-59b1-b6ea-9174455072f7.html
[xxiii] Medicaid Prrogram Integrity:Improvided Guidance Needed to Support Efforts to Screen Managed Care Providers, GAO-16-402, Government Accountability Office, April 2016, Available online at: https://www.gao.gov/products/GAO-16-402
[xxiv] See Annual Report for Medicaid Assistance for specific years.Reports available at Annual Reports Archive, North Carolina Department of Health and Human Serivices. Available online at: https://medicaid.ncdhhs.gov/reports/annual-reports-and-tables/annual-reports-archive-1979-2008
[xxv] In 2011,Nearly One-Third of Physicians said they would not accept new Medicaid patients; but rising fees may help, Health Affairs, August 2012. Available online: https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2012.0294
[xxvi] America’s Real Debt Shocker:$100 trillion owed in unfunded liabilities, Philip Wegman, National Interest, June 14, 2016. Available online at: https://nationalinterest.org/blog/the-buzz/americas-real-debt-shocker-100-trillion-owed-unfunded-16581
