Crisis made worse by Medicaid expansion

With one stroke of his pen four years ago, Democrat Gov. John Bel Edwards pushed Louisiana farther down the road to a fiscal nightmare exacerbated by Medicaid.

By expanding Medicaid, Edwards committed Louisiana to spend an extra over $300 million next fiscal year on some 450,000 people, almost all of whom are working-age adults without adult children, and of whom roughly a third to a half already had health insurance mainly through employers that now taxpayers must pick up. It capped nearly two decades of exploding state growth of Medicaid as a proportion of state revenues; by 2017 Louisiana paid out 22 percent of these to Medicaid, an increase of 11.5 percentage points since 2000 that was higher by far of all the states, tying it for the fifth-highest proportion spent among them.

Then came the Wuhan coronavirus pandemic, and the decision by Edwards to close up a good portion of Louisiana’s economy by proclamations attempting to stem the spread of the virus. Almost 300,000 people make unemployment insurance claims now, meaning at a minimum the unemployment rate will rise to over 19 percent at the end of this month. A portion of those now unemployed will lose employer-sponsored health insurance.

Most of these individuals will become part of households now eligible for Medicaid. Regular Medicaid provides free care for households at 25 percent or less of the federal poverty limit, or up to $266 a month in earnings for an able-bodied non-elderly adult, while expanded Medicaid takes that to $1,468 a month, by paying per client to state-authorized managed care insurers. Additionally, anyone making no more than $2,128 a month can access free care at any of the state’s ten public-private partnership hospitals.

On average, in the 2008-09 recession states saw their unemployment rates peak at 10.5 percent and spent 14 percent more on Medicaid, in an event that lasted nine months. Assuming economic disruption from the virus will last through the end of the year, about nine months, with the unemployment rate expected to go at least twice as high as that decade-old mark, we could see Louisiana’s regular and expanded Medicaid bills go up 28 percent for that three-quarters of a year.

If that’s the case, the state will have to come up with a lot of money quickly. With fiscal year 2018 data the last available, a 21 percent increase would equate to $1.541 billion more spent. For adults, the federal government pays 90 percent for expanded recipients, (an emergency rate due to the pandemic of) 73.06 percent for other adults, and (also an emergency rate of) 92.64 percent for children, leaving the state with the rest. With adults split at around 450,000 in each kind and about 820,000 children according to these data, this means the state will owe an extra $202 million for the period, with about a third coming due this budget year.

Of this, assuming the same proportions apply – of those without children, 26 percent have household incomes going close to zero while 26 percent of others would have enough income to qualify under expansion that would not without it – of the newly unemployed, expansion would cost $40 million extra. However, because of two-parent households and part-time work likely this overestimates households going below $266 a month and those with children that would qualify to become new enrollees. Doubling the percentage of new clients going into expansion doubles that cost to $80 million, which taxpayers wouldn’t have to bear if Edwards hadn’t acted.

And, the single-payer nature of Medicaid managed care likely made the crisis more expensive than it had to be. As such systems, akin to the “Medicare for All” plans batted around by the political left or national health systems in other countries, hold down capital spending and reimbursement rates in order not to bust budgets, this leaves fewer slack resources in the care system that makes it less able to respond quickly and effectively when a sudden surge in demand comes. That’s a real issue when two-fifths of Louisianans have health insurance through some form of Medicaid managed care.

As with declining state retirement plan investment portfolio values and rising unemployment insurance claims that both will increase state government expenditures starting next fiscal year, additional Medicaid costs will act as another ticking time bomb from the virus response that upon explosion will necessitate more state spending even as revenues take a hit from the economic shutdown. Expanding Medicaid only made this matter worse.