Ohio should block Medicaid expansion

By Grace-Marie Turner

Ohio Gov. John Kasich, a severe critic of the health overhaul law in the past, has announced his budget would endorse the dramatic expansion of Medicaid, America’s deeply flawed, expensive health program for the poor, allowed by the law.

Kasich’s decision has big ramifications for both the politics and policy of the health reform debate. While many who support a larger role for government in the health sector are cheering his decision, expanding Medicaid will further increase premiums for people with private insurance, relegate hundreds of thousands more people to a failing program, and further weaken the financial condition of Ohio’s hospitals.

Here are twelve reasons Ohio should not expand Medicaid and should instead demand from Washington greater control over spending to better fit coverage expansion with the state’s needs, resources, and budget.

1. Medicaid spending will explode.

The initial 100% federal match rate for the expansion population is very tempting.  But the match rate falls to 90% by 2020.  In addition, the state must pay added administrative costs right away as well as the higher match for coverage for those outside the expansion band who are not now enrolled but would likely do so after the individual mandate triggers in 2014.

According to The Heritage Foundation, Medicaid spending will increase dramatically as the federal matching rate for the expansion population begins to drop and as more and more Ohioans enroll in the program, as this chart demonstrates.  The expansion would cost Ohio taxpayers $3.1 billion through 2022 – an additional $985 million in 2022 alone.

Medicaid spending for Ohio has increased dramatically over the last two decades.  The additional spending surely would crowd out funds for education, transportation, parks, public safety, and other vital state needs.

2. Medicaid harms the poor.

The Medicaid program is so badly broken that it actually harms the people it is intended to serve. Medicaid has the worst health outcomes of any insurance program in the developed world. Mountains of clinical literature document by Avik Roy of the Manhattan Institute show that, on average, patients on Medicaid have poorer health outcomes than those with no insurance at all. The largest such study by far, conducted by surgeons at the University of Virginia, examined outcomes for 893,658 individuals undergoing major surgical operations from 2003 to 2007. It found that patients on Medicaid were 13 percent more likely to die in the hospital after surgery than those with no insurance, even when adjusting for age, gender, income, region, and health status. Medicaid patients were 97 percent more likely to die than those with private insurance.

This is largely because the Medicaid program pays doctors and hospitals far less than private insurers do. As a result, few doctors can afford to take many Medicaid patients.  When patients can’t get predictable access to care, their cancers go undiagnosed and their heart conditions go unmanaged. Receiving care from specialists is particularly challenging for Medicaid patients.

Ohio should instead insist that Washington provide more flexibility with Medicaid spending so that the state can develop innovative programs to expand access to care without burdening taxpayers with the significant costs of expanding a broken program.

3. Medicaid’s access problems will get worse as more doctors drop out.

Coverage is not the same thing as care.  Ohio pays doctors who treat Medicaid patients roughly half of what private insurers pay, a ratio that is getting worse over time. This is why 28 percent of Ohio’s office-based physicians refuse to accept new Medicaid patients.

The ACA provides for a temporary two-year increase in Medicaid payments for primary-care physicians, but few observers believe that this temporary increase will lead physicians to increase their participation in the program.

People already on Medicaid, with no other options for care, will find it increasingly difficult to find a doctor to see them as they are forced to compete with hundreds of thousands of new enrollees for care from a limited number of physicians.

4. Ohio will be exposed to higher Medicaid costs when Washington recalculates its matching payments.

While the lure of the 100% match in federal funding tempts states to expand Medicaid, Ohio will pay a high price for the expansion. According to a 2011 congressional report, the ACA’s Medicaid expansion would cost states at least $118 billion over the next ten years. Once more people are enrolled in Medicaid, history teaches that it is nearly impossible to contract.

And there is no guarantee these high federal matching rates will continue.  In outlying years, the federal government will attempt to reduce entitlement spending by reducing its matching payment for the expansion. Indeed, President Obama proposed doing just that in his fiscal-year 2013 budget, which would have reduced Medicaid spending by $100 billion over ten years.

In addition, many states have made extra money from their Medicaid programs by taxing providers and insurers for participating in the program. These accounting gimmicks will almost assuredly be prohibited in future federal budget negotiations, leaving states on the hook for more Medicaid spending.

5. Medicaid expansion will worsen the cycle of dependence and harm the economy.

Medicaid imposes a huge disincentive on the poor to find work because they fall out of the program once they start earning better incomes. If Ohio chooses not to expand its Medicaid program, able-bodied adults who seek work and who successfully cross the poverty line should have the option of subsidized private insurance.

This should be the focus of negotiations with Washington — seeking a united front with other states to demand much more flexibility in expanding coverage but allowing people the dignity of private insurance instead of being trapped in a failing public program.

Private insurance is a morally superior approach, one that will increase the incentives for employment and stimulate the economy through privately generated income rather than the shell game of transfer payments.

6. Claims about job creation are exaggerated.

The claim that Medicaid will add approximately 37,000 new Ohio jobs by 2016 uses out-of-date Keynesian models that have been eminently disproven. These same forecasts were used to predict that the American Recovery and Reinvestment Act of 2009 (ARRA) — commonly known as the “stimulus” — would bring the national unemployment rate below 6 percent by 2012. Instead, the unemployment rate has remained around 8 percent.

Avik Roy challenges those who claim that the Medicaid expansion will create jobs should be required to explain how their forecasting models differ from those used to project unemployment rates under the ARRA.

Robert Murray of Catalyst for Payment Reform reports on recent research from RAND “which indicates that every new job added to the health care sector results in 0.85 fewer jobs in the rest of the economy.  For every job created, the costs of running this health care system grow and eventually result in layoffs in other sectors unable to manage the growing burden of the cost of health insurance premiums for employees.”

Chris Conover of Duke University calls economic analyses claiming Medicaid expansion will lead to huge job creation “a shell game.” He explains: “every dollar going into the U.S. Treasury to finance this expansion is a dollar taken out of the private economy.”  And he adds that “Every additional dollar of new taxes shrinks the economy…That dollar would have been spent (i.e., ‘created’ or supported jobs) anyway: the Medicaid expansion simply transfers the decision about how to spend that money to Washington, D.C.”

Conover adds, “Currently every added dollar of federal taxes essentially shrinks the economy by 44 cents. Thus, if we convert this to jobs, we will lose 144 jobs for every 100 health sector-related jobs that are induced by expansion.”

State calculations are more complicated, he explains, but the bottom line is the 37,000 figure is significantly overstated, and further, expanding Medicaid means relegating up to 365,000 more Ohioans to a program that can be worse than being uninsured.

7. Medicaid crowds out private coverage.

Advocates of expansion claim that 365,000 Ohioans will be denied coverage if the state doesn’t expand Medicaid do not account for the crowding out of private insurance. Medicaid will end up replacing higher-quality, employer-sponsored health coverage for a significant share of these new enrollees. While these individuals will still have “coverage,” and therefore will not increase the ranks of the uninsured, the quality of their coverage will meaningfully decrease.

As Clare Gray, M.D., head of Physicians for Reform, explains:  “Even before passage of the PPACA, economists estimated the crowd-out rate from previous expansions of Medicaid stood at approximately 60 percent. This means that out of every 10 new Medicaid patients, six previously had private insurance.

“Because new forces now threaten to push even more patients out of the traditional insurance market into Medicaid, the next expansion of Medicaid may well have even higher crowd-out rates. This means a significant portion of the massive funding spent on ‘healthcare reform’ will only displace those who already have insurance and place them on Medicaid—a program with demonstrably poor outcomes,” Gray writes.

Therefore, expanding Medicaid will lead to more people losing private health insurance — a fact that is not included in the standard assessments of how much Medicaid expansion would increase coverage.

8. Medicaid raises premiums for those with private insurance.

There is an additional hidden cost on people with private insurance of expanding Medicaid. Because both Medicaid and Medicare underpay doctors and hospitals for their costs of care, these providers make up the difference by charging higher rates to private insurers. In 2008, Milliman, the leading insurance consulting firm, estimated that the average American family with private health insurance paid $1,800 more in premiums because of this cost-shifting phenomenon. By dramatically expanding Ohio’s Medicaid program, the state will impose a hidden tax on the millions of Ohioans with private insurance.

Because expanding Medicaid leads hospitals and doctors to shift costs onto patients with private insurance, this makes private insurance less affordable.

Rising premiums drive more and more employers to drop health coverage, driving more workers onto Medicaid and, eventually, into the Obamacare exchanges, where hospitals will also get paid less.  This vicious cycle will be accelerated by Medicaid expansion.  Instead, hospitals and other expansion advocates should be taking a leadership role in helping the state to find new ways to expand access to private health insurance.

9. Medicaid’s undercompensated care is a bigger problem than providing uncompensated care for the uninsured.

There is much concern about the problem of “uncompensated care,” whereby the uninsured use emergency rooms to get care but cannot afford to pay the bills. (Under federal law, emergency rooms must serve all who come.) But the problem of undercompensated care is a larger one.

Many hospitals believe that they will be able to improve their bottom lines if Medicaid is expanded and more patients have coverage.  But because Medicaid generally pays below costs, it’s hard to see how they can make up the losses with more volume.

If the Medicaid expansion goes through, Roy reports that hospitals’ ebullience will be short-lived. For every dollar that Ohio hospitals spend caring for Medicaid patients today, Medicaid pays 83 cents. In other words, these hospitals lose 17 cents for every dollar they spend on a Medicaid patient. That amounted to a total of $1.3 billion in Medicaid-driven losses in 2010, significantly more than Ohio hospitals spent on uncompensated charity care.

And hospitals are deluding themselves if they think Medicaid’s reimbursement rates will increase over time. With the expansion, Ohio will spend 54 percent of its budget—and 32 percent of state tax revenue—on health care, crowding out other essential state services. One of the only options the state will have to control future spending is to lower hospital reimbursement rates. It’s the classic economic joke: Hospitals will care for Medicaid patients at a loss, but will try to make it up on volume.

In Maine, a 2002 expansion of Medicaid was “a calamitous failure” for hospitals because uncompensated care did not meaningfully decrease at the same time Medicaid crowded out higher-paying commercial insurers.  Ohio would face the same fate.

10. Expanding Medicaid will expose Ohio to increased risks of fraud and waste.

All Medicaid spending takes money out of productive sectors of the economy and re-routes it as transfer payments to health care providers, the vast majority of whom are underpaid for their services — and a few of whom are bilking the system.

Official federal estimates show that at least 10 percent of Medicaid payments are fraudulent. Many prosecutors believe that the figure is closer to 30 percent. Unfortunately, there is little incentive to police fraud and waste because excess Medicaid spending frequently accrues to the benefit of providers and politicians.

In North Carolina, state auditor Beth Wood, a Democrat, recently found that the state’s Medicaid program endured $1.4 billion in cost overruns each year, including $375 million in state dollars. As a result, North Carolina has decided not to expand its Medicaid program. Before considering a Medicaid expansion, Ohio should conduct a similar audit of the program.

11. By rejecting the Medicaid expansion, Ohio encourages other states to do the same, reducing waste of taxpayer dollars.

Many states still are deciding whether or not to expand their Medicaid programs under the ACA. A principal justification that Medicaid advocates use is that declining to expand Medicaid means that a state’s taxpayer dollars go to fund Medicaid in other states.

But the large “blue states” have gone along with the Medicaid expansion because they have already expanded their programs beyond the ACA mandate. Indeed, only half of the funds dedicated to the Medicaid expansion are being spent outside the South.  Large “red states,” on the other hand, have mostly rejected the expansion.

Ohio will set an example to other states that are deciding what to do about the Medicaid expansion. Thirteen states have already rejected the expansion, with many others undecided. If Ohio joins these ten, it will do much to limit spending of Ohio taxpayer dollars by other states.

12. Ohio should demand more control and flexibility to expand coverage its own way.

If Ohio expands its Medicaid program, as many as 365,000 between 100 and 138 percent of the federal poverty level will be added to Medicaid with no incentive to reform the program. The state should demand more control over how subsidy money is distributed so Ohioans can seek higher-quality private insurance. The Healthy Indiana program provides an attractive option.  This popular program, initiated by former Indiana Gov. Mitch Daniels, provides a routine health spending account jointly funded by the state and the recipient, with a back-up insurance plan to cover higher medical expenses, such as hospitalizations. The popular program provides a better path to private coverage while saving taxpayers and recipients money.

Given greater flexibility, Ohio could build on its experience with Medicaid expansion to provide access to better health services, and in turn produce better health outcomes.

Access to a Medicaid card is not access to care.  The Ohio legislature needs to demand that the state gain more control and flexibility over Medicaid and build innovative models that give Medicaid recipients a stake in their care.

If states join together, they have more leverage to demand flexibility in Medicaid spending and to protect the state when Washington attempts to increase Medicaid costs to Ohio later on.

Ohio can lead the way to show that Medicaid can have a more efficient and effective service delivery system that enhances quality of care and outcomes.  Expanding Medicaid without of flexibility would be a major missed opportunity for the state.

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