Three reasons why Medicaid expansion is bad for Georgia

by Erik Randolph | Mar 18, 2019

By Erik Randolph, Contributing Scholar

Expanding Medicaid to reduce the number of Georgians without health insurance is an idea continually being promoted. Here are three good reasons why it would be bad for Georgia.

Reason Number One: Expanding Medicaid without fixing the individual markets would trap people in the welfare system.

Nearly 60 percent of Georgia’s uninsured would be unaffected by Medicaid expansion because their family incomes are above the threshold established by the Affordable Care Act (ACA).

The greater proportion of the uninsured has incomes between 139 percent  and 400 percent of the Federal Poverty Level. This is precisely the income range that the ACA health insurance exchanges are supposed to serve. Even with the premium tax credit and other subsides, affordability for average-income families was not achieved.

Affordability is extremely important. A study by the Institute of Medicine of the National Academies listed affordability first among reasons why people without health insurance don’t purchase some.

Consider the price increases on the ACA exchanges since their creation. Average prices in Georgia increased by roughly 70 percent since 2014, and in some Georgia counties, they have more than doubled. For 2019, a quarter of Georgia counties has only one insurance company offering policies, and half of the counties has only two insurers.

Most of the uninsured—more than 728,000—are employed. Now imagine you are a single person earning the equivalent of $8.30 per hour working full-time without health benefits. You would earn too much to qualify for Medicaid under an expansion. However, if you could reduce your income by less than five cents an hour, you would qualify for Medicaid.

What would you do if you were in this situation? Would you find a way to cut back just a little on earnings so you can get Medicaid? If you are like most persons, you would indeed.

Let’s reverse the situation. Suppose you earn $8.25 and have Medicaid under an expansion. You know that health insurance is unaffordable on the individual markets. Would you accept a pay raise of just five cents an hour knowing that you would lose Medicaid? Again, if you are like most people, you would find a way—such as working less hours or refusing a pay raise—so that your income would not exceed the threshold.

This scenario highlights the problem of transitioning off public assistance and onto the private system. The financial incentives are stacked against you, trapping you in the welfare system and its associated challenges of a low-income lifestyle.

Reason Number Two: Expansion is really, really expensive.

States that expanded Medicaid were initially enticed by the Federal government that promised to pay 100 percent of the expansion enrollment cost for calendar years 2014, 2015, and 2016. Since then, the federal reimbursement rate has been falling. It was 94 percent in 2018, is 93 percent for 2019, and will be 90 percent in 2020.

Because states must pay part of the bill, it is not surprising to learn that expansion states are doling out even more in state dollars to fund Medicaid than non-expansion states. Based on data from the National Association of State Budget Officers, the expansion states spent 95.2 percent more of their own state funds on Medicaid in 2018 than they did in 2010. As a matter of comparison, non-expansion states spent 81.5 percent more.

To put this in perspective, Georgia would have needed $562 million more in state revenue for its Medicaid program in 2018 had it expanded Medicaid along with the expansion states. This assumes that the cost of Medicaid would have grown consistent with the average experience of the expansion states. The actual cost could be less, or, more likely, it could be more considering Georgia’s population growth and poverty levels.

From a fiscal perspective, not expanding Medicaid saved Governor Deal and the General Assembly from having to increase taxes to raise $562 million in revenue in 2018, or alternatively, from the tough budgetary task of cutting more than half a billion dollars from other state programs, like education, to make room for Medicaid expansion.

When it comes to cost, we should not ignore also the impact on the federal government. According to the Peterson Foundation, health care is a key driver of the federal budget crisis and the national debt. Congress has been making promises it cannot afford, and Medicaid spending is among them.

In economics, there is no free lunch. Someday the rooster will come home to roost. We will pay for the cost one way or another, whether through inflation, cuts in needed services, eventual increases in federal taxes, or distortions in the economy.

Reason Number Three: Medicaid has the worst health care outcomes.

In his comprehensive report Transcending ObamaCare, Dr. Avik Roy correctly observes Medicaid has bad health care outcomes, the worst of any public or private health insurance coverage in America. In fact, and surprisingly, studies have showed those on Medicaid fare no better than those with no insurance coverage at all.

For example, a study published in the New England Journal of Medicineastoundingly showed persons on Medicaid for two years in Oregon did not fare better in measured physical health outcomes than comparable groups who were uninsured.  A Columbia-Cornell study on patients with clogged blood vessels or clogged carotid arteries came to the same conclusion.

Considering the notorious bad health outcomes for Medicaid patients, it makes little sense expanding the program without at least reforming it. Or better yet, it should be replaced.

Our Hopes Reside with Governor Kemp and the General Assembly

Governor Kemp is doing the right thing in pursuing federal waivers to redesign the health insurance system and Medicaid.  The waivers would give Georgia tremendous flexibility to do it right and even allow Georgia to capture dedicated federal revenue sources to underwrite the cost.

What Georgia needs is a market-based consumer-directed health insurance system with risk equalization coupled with real reform of medical assistance programs. Medicaid needs to be fundamentally changed and consolidated with other programs so poor people can access the same health insurance as everyone else, and so that no one gets trapped in the welfare system.

If done correctly, the redesign will solve the problem of pre-existing conditions, make insurance more affordable, achieve universal coverage, and not undermine the quality of care to which Americans have grown accustomed. Everyone will benefit, poor and rich alike.

* A contributing scholar to the Georgia Center for Opportunity, Erik Randolph researches and writes on welfare reform. Further research on this topic is available on the Center’s website: https://foropportunity.org/employment/welfare-reform. 

Sources:

Committee on the Consequences of Uninsurance, Institute of Medicine of the National Academies,Insuring America’s Health: Principles and Recommendations,National Academies Press, 2004. https://www.nationalacademies.org/hmd/Reports/2004/Insuring-Americas-Health-Principles-and-Recommendations.aspx.

Reforming America’s Healthcare System Through Choice and Competition, U.S. Departments of Health and Human Services, Treasury, and Labor, Report to the U.S. President in response to Executive Order 13813, 2018, p. 4: https://www.hhs.gov/sites/default/files/Reforming-Americas-Healthcare-System-Through-Choice-and-Competition.pdf.

Reforming America’s Healthcare System Through Choice and Competition, U.S. Departments of Health and Human Services, Treasury, and Labor, Report to the U.S. President in response to Executive Order 13813, 2018, p. 72: https://www.hhs.gov/sites/default/files/Reforming-Americas-Healthcare-System-Through-Choice-and-Competition.pdf.

Calculations by author using State Expenditure Reports of the National Association of Budget Officers: https://www.nasbo.org.

Peter G. Person Foundation, Key Drivers of the Debt, https://www.pgpf.org/the-fiscal-and-economic-challenge/drivers, accessed February 26, 2019.

Avik S. A. Roy, Transcending ObamaCare: A Patient-Centered plan for Near-Universal Coverage and Permanent Fiscal Solvency, Second Edition, The Foundation for Research on Equal Opportunity, 2016, pages 43 – 45:  https://www.manhattan-institute.org/html/transcending-obamacare-patient-centered-plan-near-universal-coverage-and-permanent-fiscal

Baicker K et al., The Oregon experiment—effects of Medicaid on clinical outcomes. New England Journal of Medicine. 2013 May 2; 368(18): 1713–22. https://www.nejm.org/doi/full/10.1056/NEJMsa1212321

Giacovelli JK et al., Insurance status predicts access to care and outcomes of vascular disease.

Journal of Vascular Surgery. 2008 Oct; 48(4): 905–11. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2582051/