News: CJ Exclusives

Medicaid Savings Illusory Under Obamacare Expansion, Critics Say

Overall costs will rise, and taxpayers will pick up the tab

A recent study suggests that taxpayer costs could go down if the states expanded Medicaid enrollment under President Obama’s signature Patient Protection and Affordable Care Act. But critics say expanding Medicaid actually would cost North Carolinians directly an extra $3.1 billion more over a 10-year period — and costs to federal taxpayers, including North Carolinians, would be even greater.

News reports suggest that taxpayers in some states, including North Carolina, would see the costs of expanding Medicaid coverage under Obamacare offset. But that “savings” would result from a promise that the federal government would pick up between 90 percent and 100 percent of the cost of new enrollees. Whether the additional costs are “covered” by the federal or state governments, taxpayers ultimately are responsible for all the costs.

And some health policy experts are warning the subsidy-laden enrollment enticement is a bait-and-switch scheme to move toward a national single-payer system. That could shift costs dramatically from the federal government to the states under Medicaid, the government insurance for the poor and disabled.

Republican Gov.-elect Pat McCrory has said he has not yet decided whether to expand Medicaid rolls, which would add more than a half million newly eligible beneficiaries by 2022, until he knows more about the costs.

“To be clear, we’re not saying that most states save. Most states are spending more money” under Obamacare and Medicaid expansion, said John Holahan. He is director of the Health Policy Center at the Urban Institute and co-author of a national and state-by-state research study (PDF download) conducted with the Kaiser Commission on Medicaid and the Uninsured. Both think tanks are in Washington, D.C.

Only nine states would pay less if they were to expand Medicaid rolls, according to the Urban Institute/Kaiser study. Still, Holahan said, expanding Medicaid would cost states more — just not as much as they would pay otherwise because of favorable funding mechanisms in the national health care reform law.

But Jagadeesh Gokhale, a senior fellow at the Cato Institute in Washington, D.C., raised major concerns about the study on several levels. It relied on outdated source material, assumptions in its simulation model were thinly documented, some corroborating data were omitted altogether, and some findings were contradictory, he said.

“The study assumes that new enrollees among old and newly eligible individuals will be cheaper than currently enrolled individuals,” Gokhale said. “But research shows that once insurance coverage is provided — in this case mandated — new enrollees quickly increase their use-intensity of health care services and become just as costly as those already enrolled into the program.” In other words, those enrolling in Medicaid who were not insured previously use health services just as much as those who already were in the program.

Under the law, the federal government would pay 100 percent of the cost of new enrollees for three years, then begin phasing down the match to 90 percent over 10 years. State costs for existing Medicaid patients should remain unchanged.

“Don’t think that this federal funding is going to be everlasting. Even this administration, the current administration, has put out policies that actually will reduce the Medicaid matching rates for the states,” said Nina Owcharenko, director of the health care policy center at the Washington, D.C.-based Heritage Foundation, a skeptic of Medicaid expansion.

Nor does she believe states will have greater flexibility and control over Medicaid programs under Obamacare, such as the ability to opt out later after signing on, as its proponents claim.

“I have seen no flexibility from this administration,” Owcharenko said “This is a control issue for the state that I think is bogus.”

Twila Brase, president of the St. Paul, Minn.-based Citizens Council for Health Freedom, called Medicaid expansion “another move towards a national health care system, and this 100 percent and 90 percent dangling of money before state legislators is just meant to pull them in, and then they’ll be trapped in the future in covering this broad increase of people.”

She said that large subsidy bait is “helping the Obama administration advance national health care. It’s temporary money, and in the future states are likely to be on the hook for at least half the costs of these new people.”

Like Gokhale, she raised red flags about methodology used in the Kaiser study to demonstrate cost savings.

“North Carolina has a small increase in spending if [it decides] to adopt the expansion, but that’s after netting out savings from uncompensated care” for uninsured patients as one example, Holahan said.

Obamacare requires all uninsured U.S. residents to have insurance, either through Medicaid, a private plan, or through a state or federal health care exchange offering federally approved and subsidized health care plans.

Uncompensated care now is paid through a variety of means. States are required to match funding for local clinics, local public hospitals, indigent care, and make additional payments to teaching hospitals, Holahan said.

“Once those people get insured [through Medicaid], the uncompensated care gets paid for,” Holahan said. Enrolling newly eligible uninsured people in an expanded Medicaid program would be less costly, Holahan said, reducing the incremental cost to state taxpayers.

The study did not account for other cost savings, he said. For example, it no longer will be mandatory for states to provide optional adult coverage in Medicaid after 2014.

“Some of those people could be … eligible for the really high new matching rates” the federal government would pay, Holahan said. Because of Medicaid income limits, some of those currently uninsured people would have to buy a health insurance plan off the state exchange, so the state no longer would be responsible for their costs.

The study concludes that under Obamacare, North Carolina could expand Medicaid rolls and provide uninsured residents with health coverage from 2013-22 for $3.1 billion (PDF download). Without Obamacare, the same expansion would cost $5.1 billion.

Under Obamacare, from 2013-22 state costs would rise from $68 billion with no Medicaid enrollment expansion to $71.1 billion with expansion, or $3.1 billion more. The federal costs would increase from $132.4 billion to $172 billion, or nearly $40 billion more.

The study compares Medicaid costs if Obamacare were not in effect to the costs with Obamacare in place and Medicaid rolls expanded. Under that scenario, state costs would rise from $66 billion to $71.1 billion, or $5.1 billion over the 10-year period. Federal costs would jump from $127.3 billion to $172 billion, or $44.7 billion more.

State expenses would rise from $66 billion without Obamacare in effect to $68 billion under Obamacare, or $2 billion more, if no Medicaid expansion were conducted. Federal costs would go up in that situation by $5.1 billion — from $127.3 billion to $132.4 billion.

Legislators and policy makers shouldn’t get “snookered” by the study authors’ promises of large federal matching shares, Brase said, because taxpayers eventually are on the hook for all the costs.

“They are trying to make you forget that federal dollars are paid for by taxpayers, and because it’s all new spending they even agree that state Medicaid spending will increase,” Brase said.

If North Carolina were to refuse the Obamacare Medicaid expansion, the Medicaid rolls still would grow by 174,000 people by 2022 due to normal population growth and eligibility, the study shows. If the Obamacare expansion were approved, that number would grow by still another 568,000 enrollees.

Such growth concerns Brase. She said there are likely to be hidden technology, personnel, and administrative costs with any expansion.

“If you have to start hiring more people in order to deal with this mass increase in the subsidized [population], then we’re talking about state tax dollars,” Brase said. “It will be hard to cut the rolls” once the newly added Medicaid patients become dependent on the system.

“Already 31 percent of physicians refuse new Medicaid recipients,” according to a recent survey by the Centers for Disease Control and Prevention, Brase said. With fewer doctors accepting patients, and more doctors leaving the field because of low reimbursement rates, there will be a push at the state level to find new options to treat these patients — and they will not be free.

“What kind of additional funding might come to the legislature in order to try to get them funding or building new clinics?” Brase said.

“Demand pressures are likely to escalate health sector costs and premiums,” Gokhale said, and that was not reflected in the Urban Institute/Kaiser study findings of cost per Medicaid beneficiary. Most heavily affected by the federal taxes to pay for those costs will be “younger individuals who have lower average health costs,” he said.

He questioned a variety of methodologies used in the study’s simulated model.

“The assumptions involved must be documented in great detail — especially regarding the behavioral decisions of individuals and employers. The method’s appendix does not do this,” Gokhale said.

The study claims, “Results from previous Medicaid expansions have shown that only a small minority of those covered by employer-sponsored insurance switch to Medicaid,” so there should be little impact on state costs.

“That’s not true, according to many recent studies by the National Bureau of Economic Research. In defending this point, the Kaiser-UI study cites a much older paper from 1996,” Gokhale said.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.