The good news is the alleged bad news about Medicaid changes is good news for Louisianans.
One reform encapsulated in last year’s One Big Beautiful Bill knocks out a loophole that disfavored Medicare patients over those on Medicaid, increased the number of less-valuable interventions, and distorted private sector pricing. At the tail end of the Democrat Pres. Barack Obama Administration to encourage greater Medicaid enrollment including sucking in states to accept expansion (which Louisiana foolishly followed), the federal government began subsidizing state Medicaid plans to boost rates. Often, states reimbursed at rates below commercial charges and even Medicare’s, which could reduce the supply of providers that would lower the amount of care to the Medicaid population.
This wealth transfer from federal taxpayers to states also was supplemented in most states by allowing them to levy provider taxes and have straight-up government appropriations count as matching monies. These policies facilitated boosting of spending on Medicaid to prop up rates to commercial levels, which could be double or more Medicaid rates. For example, for Louisiana’s managed care organizations that provide insurance for almost all of the non-waiver Medicaid population – the vast majority of Medicaid clients – for hospitals all of state-directed payments, provider taxes, and (for Louisiana State University Health Sciences Center New Orleans) intergovernmental transfers are used to peg Medicaid rates at or near commercial rates.
Which is why one set of researchers claim Louisiana clients could face a squeeze on care. The changes last year, set to implement in 2028 although contracts extending past that can be grandfathered in, will allow SDPs only up to 100 percent of Medicare rates in expansion states like Louisiana. The authors allege that this encourages fewer providers to take on Medicaid patients, meaning reduced care, as the cost of providing services could exceed reimbursements. As Louisiana is one of the largest practitioners of SDP usage, they envision a disproportionate impact on the state’s Medicaid population.
Yet that ignores that if Louisiana pegs Medicaid rates at Medicare’s, why should there be a large negative service impact if there already isn’t one for Medicare? In fact, the imbalance favoring the former over latter still would exist, if smaller, because as the Medicare population is older thus sicker and has more disabilities (people legally classified as disabled for Social Security payments automatically qualify for Medicare regardless of age) and therefore might squeeze margins more, as well as their co-payments might be higher if they pass their deductibles while few Medicaid clients in Louisiana have co-payments beyond prescriptions.
Also, volume of services delivered actually could increase. If the new rates make for thin margins, then higher delivery volume can increase revenue, creating an incentive to see more patients. And if margins turn negative and some providers bail out, the longer wait times that will ensue will create incentives for that segment in the expansion population able to obtain other insurance relatively easily (about a third to a half of those that glommed onto expansion previously had insurance by other means) where some will exit expansion, leaving more room for others with more genuine need for service acquisition.
Besides redressing the imbalance, state taxpayers also will save. The impact of provider taxes and intergovernmental transfers only distorts the market to have states focus more on capturing federal dollars than by providing efficient services – which also raises taxes or beggars money from spending elsewhere and raises commercial premiums, as providers play a shell game by offloading the costs of the tax onto the rates they charge to private pay patients, that lighten taxpayers’ pockets further.
As well as saving federal taxpayers about $500 billion over the next decade, states as a whole will save $250 billion collectively through lower taxes, rates, and programmatic spending. Seeing as service provision only marginally would be curtailed if at all, that’s a big win for Louisiana.
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