Seven Reasons States Shouldn’t Expand Medicaid

Seven Reasons States Shouldn’t Expand Medicaid
January 11, 2013

Merrill Matthews

Merrill Matthews, Ph.D., is a resident scholar with the Institute for Policy Innovation, a research... (read full bio)

Democrats are desperately hoping the states will accept the Medicaid expansion being foisted on them by President Obama’s health care law, but they may be disappointed.

The primary reason for their concern is blatantly self-serving: ObamaCare’s success, like its RomneyCare prequel in Massachusetts, will be judged solely by how many uninsured people get coverage. The pretense of increasing quality and lowering costs was abandoned months ago; now it’s all about reducing the uninsured.

If states refuse the Medicaid expansion, which the U.S. Supreme Court has ruled they can do, the whole idea of universal coverage goes out the window. And ObamaCare will be judged a failure.

Currently, nine states have rejected the Medicaid expansion and six are leaning against it; 13 have said yes and four are leaning toward it. For states that are still undecided, here are several reasons they should reject the expansion.

1. Medicaid Is Bad Coverage

Medicaid is the worst health insurance coverage in the country, and yet ObamaCare did nothing to fix its many problems. Take access to physicians. The Texas Medical Association published a survey showing the number of Texas doctors willing to accept new Medicaid patients declined from 42 percent in 2010 to 31 percent in 2012, in large part because Medicaid pays doctors so little. For various reasons, Medicaid beneficiaries often go to the emergency room instead of a family doctor. In addition, Medicaid drug formularies limit the poor’s access to many beneficial drugs.

The problem highlights a serious misunderstanding among Democrats pushing the legislation: Access to health insurance is not the same as access to health care. ObamaCare goes to great strides, and even greater expense, to ensure people have coverage. That does not mean they will be able to get care.

Although Medicaid is better than having no insurance, expansion only exacerbates Medicaid’s many problems. Coverage for the poor should not be synonymous with poor coverage.

2. The Exploding Medicaid Population

Medicaid currently covers more than 70 million Americans, and ObamaCare increases that number by an estimated 17 million almost immediately. In addition, those designated as disabled are eligible for Medicaid, and that population has grown at unprecedented levels since Obama became president, from 7.5 million to 8.8 million.

3. The Woodwork and Crowd-Out Effects

Those Medicaid growth projections are likely low, as eligible people “come out of the woodwork” to join the program. For example, an estimated 25 percent of the uninsured are eligible for Medicaid but not enrolled.

More importantly, employers with a large number of low-income workers who offered some type of basic coverage may drop it or shift some employees to part-time, making them eligible under Medicaid’s new eligibility standards. That’s known as the “crowd-out effect.”

4. The Cost to State Budgets

Medicaid spending has been growing by about 8 percent a year, compared to economic growth of 1 percent to 2 percent. ObamaCare puts Medicaid on growth hormones: Total Medicaid spending (state and federal) is projected to grow from about $400 billion to about $900 billion by 2020.

At 23.5 percent, Medicaid has become most states’ biggest budget item, surpassing K-12 education. We are already at the point where other state priorities are suffering because of money being sucked up by Medicaid, and that problem will only get worse.

Expansion advocates claim the federal government will absorb most of the cost of the newly eligible Medicaid enrollees—100 percent for a few years, dropping to 90 percent by 2020. That’s much larger than the average 57 percent share the federal government now pays. What a deal!

Expanding Medicaid will still cost states billions of dollars, even at the reduced state share. And taxpayers are still paying for the coverage, of course; the taxes—actually, borrowed money—are just coming from the feds rather than the state.

5. Federal Controls

Although a bipartisan coalition of governors has asked Washington for more flexibility over their Medicaid program, ObamaCare doubles down on federal control. If states thought federal mandates and restrictions were suffocating under traditional Medicaid, they will be gasping for air under the expansion.

6. Rampant Fraud

Medicaid fraud is rampant and will only get bigger under expansion. No one knows for sure how big the Medicaid fraud problem is, but estimates put it in the range of $60 billion a year. For example, Texas spent $1.4 billion on Medicaid pediatric orthodontics—more than every other state combined!

States have been rapidly shifting their Medicaid populations to private sector managed care companies, which helps reduce costs and fraud. But the government has yet to figure out how to cut the waste, fraud, and abuse.

7. Loss of State Sovereignty

Medicaid is supposed to be a federal-state program. But the Medicaid expansion is one more effort by the federal government to micromanage the states and what they do. That effort is fundamentally breaking down our federalist system, a system in which the federal government has its sphere of authority, as do the sates—and individuals, for that matter.

Democrats claim Republicans should work with them to implement the Medicaid expansion. But the time for “working together” was when the legislation was crafted, and Democrats rejected that option. Considering all the problems that will come with Medicaid expansion, states would be wise to reject it now.

Merrill Matthews

Merrill Matthews, Ph.D., is a resident scholar with the Institute for Policy Innovation, a research... (read full bio)