Medicaid Expansion Will COST Virginians, In Many Ways

Virginia, like many others states, is struggling with whether or not to expand Medicaid for uninsured citizens who have incomes up to 133% of poverty, as the new health law allows.

The commonwealth should resist.  There is no guarantee that initially-generous federal funding will continue, hospitals will have a larger number of patients whose care is compensated at below-cost rates, the expansion will further drive up insurance costs for the privately-insured, and the commonwealth will condemn hundreds of thousands more citizens to a program that can be worse than being uninsured.

Even with the generous match rates the health overhaul law offers, the Medicaid expansion would cost all states at least $118 billion through 2023, according to a 2011 congressional report by Sen. Orrin Hatch (R-UT) and Rep. Fred Upton (R-MI).1 The expansion will crowd out money greatly needed for transportation, education, public safety, and other vital needs.

Many governors are rightly resisting adding more people to Medicaid and are demanding that Washington give them more flexibility to improve the program.

No guarantee the match will continue

The new health law calls for the federal government to initially pay 100% of the cost of adding a select group of uninsured people to Medicaid until 2016, dropping to 90% by 2020 and forward.  The U.S. Supreme Court decision in June said that the expansion was optional for the states.

If states were to expand coverage with the promise of an initial 100% federal match, there are no assurances that Washington would be able to keep its promise to continue the generous funding.  Despite recent comments from HHS Secretary Kathleen Sebelius assuring states the funding would continue, this 100% promise is very likely a bait-and-switch.2

Sebelius has no legislative authority, and there already is evidence that changing the formula is the administration’s plan. President Obama proposed reducing federal Medicaid spending by $100 billion over ten years during last year’s “super committee” budget negotiations.3 He proposed changing the traditional federal Medicaid matching rate in a way that would lead to a smaller overall federal contribution to the program — and a larger state-based one.

States are right to worry about whether Washington would keep its promise to fund the expansion. They should use the leverage the Supreme Court has given them to demand much-needed reform of the program.  States, taxpayers, and especially vulnerable Medicaid recipients deserve better.

Harming the most vulnerable

Further, the Medicaid expansion will harm the poorest and most vulnerable patients who are already on the program as they are forced to compete with new patients seeking care but with no increase in the number of physicians and other health care professionals.

Studies have shown that Medicaid patients fare worse in many cases than the uninsured.4 A large study by the University of Virginia found that surgical patients on Medicaid are 13 percent more likely to die than those with no insurance at all and 97 percent more likely to die than those with private insurance.

In many states, Medicaid pays doctors so little, recipients can’t find a private physician to see them so they must wait, sometimes for hours, in hospital emergency rooms to get care. They deserve the dignity of private insurance, which states could do if they were freed from Medicaid’s mountains of red tape.

Scott Gottlieb of the American Enterprise Institute explains in an article for The Wall Street Journal that dozens of recent medical studies show that Medicaid patients have worse health outcomes than those who are uninsured.5 Here’s a sampling of the research Gottlieb cites:

  • Head and neck cancer: A 2010 study of 1,231 patients with cancer of the throat, published in the medical journal Cancer, found that Medicaid patients and people lacking any health insurance were both 50% more likely to die when compared with privately insured patients—even after adjusting for factors.
  • Major surgical procedures: A 2010 study of 893,658 major surgical operations performed between 2003 to 2007, published in the Annals of Surgery, found that being on Medicaid was associated with the longest length of stay, the most total hospital costs, and the highest risk of death. Medicaid patients were almost twice as likely to die in the hospital than those with private insurance.
  • Poor outcomes after heart procedures: A 2011 study of 13,573 patients, published in the American Journal of Cardiology, found that people with Medicaid who underwent coronary angioplasty (a procedure to open clogged heart arteries) were 59% more likely to have “major adverse cardiac events,” such as strokes and heart attacks, compared with privately insured patients.
  • Lung transplants: A 2011 study of 11,385 patients undergoing lung transplants for pulmonary diseases, published in the Journal of Heart and Lung Transplantation, found that Medicaid patients were 8.1% less likely to survive 10 years after the surgery than their privately insured and uninsured counterparts. Medicaid insurance status was a significant, independent predictor of death after three years—even after controlling for other clinical factors that could increase someone’s risk of poor outcomes.

And there will be increased administrative costs to the states for expanding Medicaid.  The enhanced federal matching funds provided under the ACA explicitly do NOT cover administration of the expanded program. The Obama Administration estimates that the states will need to pay an additional $12 billion in administrative costs.

Medicaid is the worst health program in the country.  Virginia should not add more citizens to this program without demanding change.

Hospitals compensated at below-cost rates

Avik Roy of the Manhattan Institute explains in an article why Ohio shouldn’t expand Medicaid, and all of the reasons apply in Virginia.6

For many years, the Medicare program has made payments to hospitals, called Disproportionate Share Hospital payments (DSH), in order to compensate hospitals for taking care of the uninsured, because Medicare mandates through the EMTALA law that hospitals provide emergency care to everyone, including illegal immigrants, regardless of their ability to pay. The feds made $11.3 billion in such payments in 2011.

On October 1, 2013—the beginning of the 2014 fiscal year—Obamacare cuts those DSH payments by 75%.

Hospitals believe that if they get new patients with insurance, they can make up for the lost DSH payments.  But Medicaid pays hospitals below their costs. It’s very difficult to make up for these losses by adding more volume.

Costs rise for the privately insured

Avik also explains that Medicaid expansion will drive up premiums for others because hospitals will make up for the costs of Medicaid’s underpayments by charging more to people with private insurance: a phenomenon known as “cost-shifting.”

In 2008, Milliman, the leading insurance consulting firm, estimated that the average American family with private health insurance paid $1,800 extra, because of Medicaid and Medicare’s underpayments to providers. With the number of people on government-subsidized insurance set to double, cost-shifting is destined to go up.

Governors should demand more control

As Jim Capretta and Yuval Levin of the Ethics and Public Policy Center explained in an article in The Wall Street Journal:7

The Medicaid expansion, meanwhile, would throw millions of additional Americans into a system that is already bankrupting state governments and increasing costs in the private-insurance market. Medicaid’s payments for services are so low that many existing beneficiaries have trouble finding physicians and other health-care providers who will accept them as patients. Enrolling more people without reform will push the system to the point of collapse.

In refusing the Medicaid expansion, governors should notify Washington that doing so means freeing themselves of ObamaCare’s “Maintenance of Effort” requirements. These would prohibit states participating in the Medicaid expansion from reforming their Medicaid systems to reduce costs.

Instead of following the Obama administration’s plan, states should seek real reform. For example, they should demand that Washington transform the federal portion of Medicaid for non-disabled and non-elderly beneficiaries into a uniform block grant, with state discretion over eligibility and benefits. The goal should be to turn Medicaid into a premium-assistance program rather than government-run insurance. Medicaid could then be used to help people enroll in mainstream insurance plans. This is the way to help the low-income uninsured get the same kind of coverage as other Americans.

States should resist any Medicaid expansion until the federal government reforms the program and gives governors and state legislators more control over how the money is spent to get the best care at the lowest price to their own citizens.

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization based in Alexandria, Virginia, that focuses on market-based solutions to the nation’s health care financing problems.  She can be reached at 703 299-8900 or


Senator Orrin Hatch and Representative Fred Upton, “Medicaid Expansion in the New Health Law: Costs to the States,” Joint Congressional Report, March 2011,

2 Jason Millman, “Kathleen Sebelius: Medicaid expansion’s not ‘bait and switch,’” Politico, February 5, 2013,

3 “Fact Sheet: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility,” Office of the Press Secretary, The White House, April 13, 2011,

4 Avik Roy, “The Medicaid Mess: How Obamacare Makes It Worse,” Manhattan Institute, March 2012,

5 Scott Gottlieb, “Medicaid Is Worse Than No Coverage at All,” The Wall Street Journal, March 10, 2011,

6 Avik Roy, “How Ohio’s Medicaid Expansion Will Increase Health Insurance Premiums for Everyone Else,” Forbes: The Apothecary, February 13, 2013,

7 James C. Capretta and Yuval Levin, “Why ObamaCare Is Still No Sure Thing,” The Wall Street Journal, November 18, 2012,

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