Why Business Leaders Should Reject Medicaid Expansion
Apr 13, 2014 | 2130 views | 0 0 comments | 12 12 recommendations | email to a friend | print

Why Business Leaders Should Reject Medicaid Expansion


This commentary originally appeared in The Dallas Morning News on April 8, 2014. 

In the ongoing expansion debate, an oft-repeated argument for expansion under the Affordable Care Act is that it simply makes good business sense. The federal government is offering to foot most of the bill for expansion, so why not take the money?

The argument goes like this: Texas has the highest uninsured rate in the nation. Medicaid expansion will lower the number of uninsured and alleviate the taxes and high insurance premiums Texans pay to cover the cost of treating the uninsured in hospital emergency rooms (what’s called uncompensated care). In addition, the influx of billions in federal Medicaid dollars will be an economic windfall for Texas, creating thousands of taxpayer-funded jobs.

The latest group to buy into this rhetoric is the Dallas Citizens Council, an organization that has called on Texas’ business leaders to support Medicaid expansion under Obamacare. But the group’s reasons for supporting expansion don’t stand up to close scrutiny.

Take the claim about reducing uncompensated care and emergency room costs. Although it’s true that many uninsured families seek routine or nonemergency care in the ER, Medicaid patients do the same thing. In fact, a landmark study published last year by researchers from Harvard and MIT found that in Oregon, Medicaid patients were 40 percent more likely than the uninsured to use the emergency room for nonemergency treatment.

Why? Because according to federal rules, Medicaid patients do not have to pay significant penalties for using the ER. Hence, there is no incentive for them to seek care in a less costly setting. Indeed, among states that partially expanded their Medicaid programs a decade ago, most found that uncompensated care increased at a faster rate than it had before expansion. In Maine, those costs skyrocketed from $40 million in 2000 to $196 million in 2011.

As for the second claim, that Medicaid expansion is a “business bargain,” consider that Texas lawmakers appropriated about $58.5 billion for Medicaid in the 2014-15 budget. That’s about 30 percent of all state and federal spending combined. Fifteen years ago, Medicaid was only about 20 percent of the budget.

Without reform, this gradual but sustained long-term growth threatens to overwhelm other spending priorities such as education and infrastructure. Expansion will only accelerate this trend, forcing spending cuts in other areas, tax hikes, or both. That’s not a recipe for economic growth.

The inflexibility of the Medicaid program itself is perhaps even more important than the cost. Although the state runs the program, the federal government sets the rules. States are not allowed, for example, to tailor benefit packages for Medicaid patients that cover only certain treatments, as is the case with private health insurance plans. The only substantive tool states have to control costs is to cut provider rates, which for years has been prompting doctors in Texas to drop out of the Medicaid program entirely. States need more flexibility, but real reform is not possible as long as the rules are set by Washington, D.C.

To mollify skeptics, the Dallas Citizens Council suggests a “Texas Solution,” in which the Medicaid expansion “could terminate if the federal funding ever drops below the 90 percent promised by Washington.”

But that’s simply not possible under federal law. For a state to expand under Obamacare, it must amend its Medicaid state plan and the federal government must approve the amendment. Once that happens, the Medicaid expansion becomes part of the contract between the state and the Department of Health and Human Services, which has authority to enforce the state plan and withhold federal Medicaid funds if the state does not comply with it.

In other words, if in six or seven years the feds decide to ratchet down the 90 percent reimbursement rate it promised for the Obamacare Medicaid expansion, there’s nothing a state can do except pay for the extra costs with state funds.

Leaving aside the issue of poor health outcomes for Medicaid patients, accepting billions in “free” federal money to pay for expansion is not a good business opportunity. It’s a liability for Texas taxpayers, who will not only pay more for an expanded Medicaid program but also won’t be able to get out of it once they realize just how much it will cost.


John Davidson is a senior health care policy analyst at the Texas Public Policy Foundation and may be contacted through texaspolicy.com.

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