Senators must disregard Medicaid expansion myths

Today, Louisiana’s Senate Finance Committee will converge to discuss Medicaid costs. Undoubtedly part of the discussion will include expansion of Medicaid and its impact on the state’s budget, which continues to face pressure. Forces with an ideological motive to see the U.S. move towards government single-payer insurance have promoted a mythology about expansion that continually confuses debate on the subject. As a public service, myth and reality on this topic are explored here.

Myth: Medicaid expansion has saved states money.

Fact: The program deliberately was front-loaded with the federal government picking up all the provider costs for the first three years, although states did have to pay administrative costs. It could be argued that all the federal dollars being redistributed about could make certain states winners, although this ignores that, if left uncollected from taxes and/or through the consequences of increased debt, allowing earners of this money to keep it would have resulted in more efficient uses of it that may increase economic activity beyond that artificially stimulated by the redistribution into health care spending by government. Further, some states had state-run programs that could be passed off to the federal government in very large part because of expansion.

But the data show that many states on balance have seen huge cost increases well beyond what was anticipated by expansion, because they underestimated costs – new enrollees who were predicted to actually cost less ended up costing on average 19 percent more – and enrollments – where almost all states have seen more enrollees than expected. The overall number of enrollees climbed a stunning 28 percent, with some states underestimating enrollments and costs by at least half. Go figure – give something away, and more people using more of it want it.

While there’s reason to think these hikes will taper and not continue at higher-than-expected levels, the baselines established already have many expanding states set to pay out much more than they anticipated when in 2017 they start to pay a portion of the costs. This means to offset, savings will have to be greater than anticipated from sources such as a drop in uncompensated care costs, emergency room visits, and greater access to preventive care. For most states, that seems unlikely.

Myth: Medicaid expansion will save states money because it will decrease uncompensated care costs, which are scheduled to decline by half in the next several years.

Fact: While overall hospitals pass along about a third of UCC costs to private/third-party payers, for the remainder they eat the costs. Some UCC payments will come through the federal government’s Disproportionate Share Hospital program that sends money to providers that serve a significant number of the uninsured and others directly from state and local governments. Presumably, having Medicaid cover these costs would decrease UCC claims that state and local governments would have to pick up, either by having lower insurance payments, deductibles, and co-payments by individuals and governments because of some of these costs not having to be passed along, or by simply not paying directly as many UCC to providers.

But a national study suggests that the displacement of UCC patients into Medicaid at best will net out as far as state financing goes, with the hard numbers suggesting expansion would cost across the states over a billion more dollars annually than derived in UCC savings. The cost differential could swing more in the favor of states as the law originally was to have started reducing UCC payments already. But because projections have been so far off to the detriment of safety-net hospitals, no reductions have occurred and may never, leaving states with more federal money to treat the uninsured.

Myth: Medicaid expansion will save states money because it will replace emergency room visits with preventive care.

Fact: These visits continue to climb in number in states that expanded and nationwide despite more people insured. In fact, the most comprehensive experimental study on the concept of Medicaid expansion notes that new Medicaid enrollees are more likely to use ER services than the uninsured.

That’s because expansion provides only the guarantee of insurance, not of care. With Medicaid reimbursement rates so low (even with some states picking up and still paying to providers the 2013-14 “fee bump” for expansion that the federal government discontinued), proportionally fewer and fewer providers are accepting new Medicaid patients while that population has increased dramatically in states that expanded. So, with wait times to see doctors up, Medicaid clients head to the ER for their primary care. Thus, in dollar terms less efficient care drives up costs under expansion and puts states in a no-win situation: to reduce ER usage and those costs, they must increase costs on Medicaid reimbursement. Expansion does nothing to drive down costs in this way.

Keep in mind also that preventive care only partially impacts costs, under the theory that catching maladies early staves off the bigger costs from complications down the road. Many of the poorer-registering aggregate American health indicators come not from a lack of health care intervention, but from poor lifestyle choices that no amount of preventive medicine can counteract.

Myth: Medicaid expansion will create a healthier population than if some are left uninsured, saving money.

Fact: A large number of studies demonstrate this simply is not the case. In the aggregate, Medicaid clients have health outcomes no better than the same uninsured population, and other studies in many specific areas show worse outcomes, in areas ranging from major surgeries to some late-stage cancers to lung transplants.

In all likelihood, these sorry statistics come from the low reimbursement rates that not only attract less capable providers but also encourage assembly line medicine to increase quantities, the cursory nature of which means less appropriate care. Care in an ER might be far more expensive to taxpayers on a case-by-case basis, but may produce better outcomes with fewer future complications to make it overall cheaper.

Myth: Louisiana’s increasing Medicaid costs are partly a consequence of lack of expansion.

Fact: Nationally, while state Medicaid costs of expansion states rose about a half more slowly than those of states that didn’t, keep in mind expansion medical costs were paid fully by the federal government. Looking at total Medicaid spending, expansion states increases were three times higher than those of non-expansion states.

In reality, the main drivers of spending are matching payments by the federal government, the take-up rate of eligible enrollees, service use intensity, and medical inflation. The state’s growth rate from 2000-14 in such spending is only 2.3 percent. In fact, the rate of increase from 2010-14 was well below the national average of 5.2 percent, at 1.4 percent – remarkable in that the federal government reimbursement rate plummeted 18 percentage points in that timespan and a testament to efficiencies such as the move to the Bayou Health managed capitation plan and away from direct operation of charity hospitals.

Myth: By not choosing expansion, dollars that Louisiana could get for health care instead are given to other states.

Fact: debunked here already.

Look for all of these myths to be propagated, and often uncritically repeated by the media, today and for the foreseeable future. Do not be fooled by these, for the facts negate them.