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Medicaid expansion analysis: higher costs, poor patient outcomes, federal oversight

Medicaid expansion analysis: higher costs, poor patient outcomes, federal oversight

Idaho Freedom Foundation staff
July 11, 2014

Note: This is the second of a two-part analysis series examining Medicaid expansion issues. Today’s analysis focuses on the costs associated with Medicaid, patient outcomes and the increasing role of the federal government in Medicaid expansion plans. Thursday’s analysis dealt with the unpleasant experience of Arizona and Maine in expanding Medicaid contrasted with that in Florida, which seems to have developed a plan for expanded health care that is working.


Medicaid is meant to provide health care to people who can’t afford it; the expansion sets the line at 138 percent of the Federal Poverty Level (FPL), or about $16,105 for a single person. The Urban Institute says that the biggest beneficiaries of such measure would be childless, healthy adults who make up more than 82 percent of the uninsured population.

However, such a measure is highly unpopular in Idaho. A 2012 survey in Idaho showed that 63.5 percent of people opposed the expansion. Nationally, associations like the National Federation of Independent Businesses (NFIB) also oppose Medicaid expansion. The Virginia chapter fears that expanding Medicaid will crowd out government spending for programs like education and that the state won’t be able to foot the bill.

Their fears might be right. The appropriated funds in Idaho for Medicaid for 2014 ($2.03 billion) are equivalent to the total budget for Fiscal Year 2005. During that time span, Medicaid spending increased almost 71 percent. And, according to data compiled by the National Association of State Budget Officers (NASBO), nominal spending for Medicaid has increased more than 30-fold between 1985 and 2013.


An economics professor at MIT, Amy Finkelstein, believes that the increase is due to the fact that Medicaid patients use emergency rooms more often—up to 40 percent more than other patients. Michael Cannon of the Cato Institute says this increase is because Medicaid patients don’t pay for the real price of their visit. As a result, they visit more often, and in the most expensive part of the hospital.

Furthermore, NFIB is also right about the crowding out. As shown in graph 2, Medicaid’s spending in Idaho as a percentage of the total budget (in purple) has been constantly increasing. In 1985, some 4.6 cents of every dollar was spent on that program; in 2011, it was 28.5 cents, more than a six-fold increase.


In other words, should Idaho move forward with Medicaid expansion the state could face a decision to limit the new beneficiaries, as some states did, reduce services or increase taxes.

Medicaid is often touted as a needed program to assure better patient outcomes in insured folks versus those uninsured. But what seems to make sense—better outcomes due to insurance coverage—is not necessarily so.

The Employment Policies Institute published a study comparing health outcomes for insured and uninsured patients between ages 51 and 61. Those with a private insurance had a 5.4 percent risk of being dead after six years while Medicaid patients had an 18.9 percent risk; it was 7.2 percent for the uninsured. By 2008 the figures were, respectively, 17.5 percent and 41.5 percent (and 21.9 percent for the uninsured). A 2010 study by the National Center for Policy Analysis also finds a wide discrepancy.

Children with Medicaid and CHIP (which covers children up to age 19) also face a wall. A 2011 report from the Government Accountability Office (GAO) states that physicians only accepted 47 percent of children under both programs as new patients; it was 79 percent for privately insured children. And when it comes to specialist referrals, only 16 percent of publicly insured children could get an appointment with no difficulty.

One of the main reasons has to do with the money health professionals receive. A 2012 study from the Heritage Foundation found that Medicaid reimburses on average 56 percent of what private insurers do.

In addition to the questionable patient outcomes, the Foundation for Government Accountability says there is a shortage of primary care physicians in 43 of Idaho’s 44 counties, plus 41.5 percent of those working are 55 or over.

Medicaid expansion is touted by the Center for Budget and Policy Priority as “a very favorable financial deal for states.” The federal government will pay 100 percent of the new costs incurred between 2014 and 2016 and 90 percent thereafter. That ignores the reality that all taxpayers will ultimately pay the cost. It is not a “free” program.

In addition, federal programs come with several strings attached that almost no one can do away with. Iowa learned it the hard way, as reported by the Foundation for Government Accountability. Among others,

  • It couldn’t limit reimbursements to federally qualified health centers and rural health clinics to match what the Obamacare exchange reimburses.
  • It couldn’t limit family planning services to providers who had contracted with the Obamacare exchange plans.
  • It couldn’t increase to $10 (up from $8) the copayment for non-emergency uses of the emergency room.

Other states that wanted flexibility also found rigidity. In Tennessee, Gov. Bill Haslam finally abandoned the idea of expanding Medicaid according to Obamacare parameters after facing almost no flexibility from Health and Human Services (HHS) Secretary Kathleen Sebelius.

Pennsylvania Gov. Tom Corbett also met such inflexibility, which pushed him to refuse the expansion altogether. He said, in a letter to the HHS secretary, that the program as it stands is unsustainable and would require large tax increases.

Finally, Arkansas also failed at obtaining flexibility. Its “private option” would have used federal monies to buy private insurance for eligible citizens. Unfortunately, all private plans have to be at least equivalent to Medicaid plans. And since private insurers reimburse more than Medicaid, Arkansas taxpayers will have to pay much more.

Medicaid expansion for Idaho will likely mean very tight control from the federal government and little liberty to cut costs.

PG Veer is a summer intern from the Charles Koch Institute. He has written and edited for several publications in Canada and most recently interned for the Cato Institute.

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