Conservatives and the Medicaid Expansion

by Andrew Evans
Conservatives may only tinker while Obama overhauls the welfare state.

With little fanfare, Michigan began enrolling people in its new Medicaid program at the beginning of April. Michigan, which in 2010 came under undivided Republican control for the first time since 1998, has passed laws enacting favorite conservative causes — most notably passing legislation in December 2012 to turn this historic stronghold of labor unions into a right-to-work state. So it was somewhat surprising that Michigan governor Rick Snyder broke with national Republicans and agreed late last year to a core provision of Obamacare: the Medicaid expansion. On April 1, that expansion went into effect.

Michigan stands out among Republican-controlled states, but it is not alone. Most red states have refused to expand Medicaid, the government’s health-insurance program for the poor, while all blue states quickly jumped onto Obamacare’s expansion of the entitlement program (and all the new funds that go along with it). But a group of states with significant Republican control, such as Michigan, Arkansas, Iowa, and, most recently, New Hampshire, are trying to chart a middle way by using seemingly conservative means to expand their states’ Medicaid programs.

Obamacare’s Medicaid expansion provides an opportunity for Republicans to reform the welfare state by applying conservative ideas and principles, and some GOP-led states are trying to seize this opportunity. Despite their best efforts, though, these states are hamstrung by federal regulations and control of Medicaid. The Obama administration is limiting their ability to innovate and their capacity to stake out a fundamentally different vision of welfare in the United States from the one implied in Obamacare.

Medicaid was created in the same 1965 Great Society bill that created Medicare, and both programs were intended to serve populations that were falling through the cracks of society. While Medicare is available to everyone over the age of 65 regardless of financial means, however, Medicaid (which is run in a state-federal partnership) has traditionally been available only to those deemed unable to care for themselves: poor children, pregnant mothers, and the disabled.

Because the program targeted these specific groups, most states did not provide Medicaid insurance to healthy adults without children, creating a “coverage gap.” This gap followed the logic of safety-net programs: The programs caught people when they were falling helplessly and prevented complete catastrophe, but they were not an entitlement available to all. Healthy adults are capable of providing for themselves in ways that children and the disabled are not. As a result, states did not provide free health insurance to those who could reasonably be expected to take the steps necessary to obtain it themselves.

Obamacare changed all this. Obamacare seeks to expand access to health insurance as broadly as possible without regard to an individual’s circumstances. As a result, the law encourages states to expand the eligibility for Medicaid to 138 percent of the poverty level for everybody, including healthy adults, without regard to individual circumstances. Health care is a “right for every single citizen of these United States of America,” President Obama said recently — and the goal of Obamacare is to make sure that all have the same access regardless of their choices and priorities.

Conservatives see several traps inherent in the administration’s approach to the welfare state, what some might call an “entitlement” vision as opposed to a narrower “safety net” vision. Entitlements can too easily reduce the motivation of individuals to work and advance themselves, and they reduce the necessity of personal responsibility. This dependence on a distant, faceless, but nearly omnipotent provider degrades the character of the people and consequently weakens the fabric of society by isolating and infantilizing individuals.

The Medicaid expansion under Obamacare is a move toward the “entitlement” vision of welfare, but it does not have to be. Michigan and its neighbor to the south, Indiana, illustrate the potential for conservative welfare reform and how the Obama administration is stifling innovation.

In 2007, then-governor Mitch Daniels led Indiana to adopt the “Healthy Indiana Plan,” or HIP, which combines a high-deductible private-insurance plan with a health-expense-specific savings account (called a POWER account). Under HIP, the state expanded Medicaid to the same group covered by the Obamacare expansion — healthy adults who didn’t otherwise qualify for Medicaid (albeit with an enrollment cap, causing some still to be left out) — but simultaneously required much more from them than what traditional Medicaid demanded.

The insurance plan had a high deductible, $1,100, meaning that the participant would have to pay the first $1,100 in medical costs. The POWER account provided the means for paying this deductible. Almost all HIP participants, regardless of income, made monthly contributions to their POWER accounts, with the amount varying from 2 to 5 percent of income. The state then supplied the difference between the $1,100 deductible and the participant’s contribution, giving the individual the means to pay the deductible. Federal Medicaid regulations do not allow this much cost-sharing from program participants, and so Indiana’s divergence forced it to pursue a waiver from the Bush administration. The administration granted it. 

The program had further requirements. If participants in HIP did not make a required contribution to their account within 60 days, they were kicked out of the program and prohibited from reapplying for a year. The heavier requirement placed on them, and the stiff consequences they faced if they failed to meet it, meant that they had to take responsibility for their own health care.

Indiana’s program had other virtues as well. For example, the participants controlled how the money in their POWER accounts was spent, and if they had any money left over at the end of the year, it could be rolled over into the next year to reduce their subsequent contributions. This encouraged smart spending and cost awareness, since any savings could directly benefit the participant.

Indiana’s plan filled in the “coverage gap” in Medicaid not by simply expanding a government program but by creating a new program that encouraged personal involvement and responsibility. The program acknowledged that sometimes people cannot afford health insurance, so it gave them the ability to receive it, but it demanded sacrifices from them in return. In short, unlike Obamacare, HIP treated people according to their circumstances.

HIP wasn’t perfect, even for conservatives, but it was a success. Only 8 percent of those enrolled between 2008 and 2010 were kicked out for failing to contribute to their POWER accounts. In 2013, 96 percent of participants were satisfied with the program, according to the state, and well over 80 percent expressed a willingness to pay more to keep their insurance through the program.

The Healthy Indiana Plan would seem to be an ideal vehicle for expanding Medicaid in that state under Obamacare. Indiana governor Mike Pence proposed that idea, but he has been rebuffed by the Obama administration. HIP’s innovative design ran afoul of the administration’s mindset that Medicaid should be essentially free for all — that health insurance, in other words, is a right you are entitled to rather than a service you could lose if you don’t contribute what you can.

Instead, the administration prefers programs that more closely mirror traditional Medicaid, which is essentially free, and Michigan’s plan provides a good illustration here. Under the “Healthy Michigan Plan” — a not-so-subtle nod to its southern neighbor — each participant receives a “MI Health Account,” from which his medical expenses will be paid.

Unlike in Indiana, however, only those who make between 100 and 138 percent of the poverty line will have to contribute to their accounts; in Indiana, almost all participants had to contribute. If you miss a payment in Michigan, nothing happens; in Indiana, you were booted. In Michigan, the program participant simply monitors expenses through quarterly statements; in Indiana, program participants had complete control over the money in the fund. In short, while Indiana implemented an extensive overhaul of Medicaid, Michigan is essentially just expanding Medicaid by tacking a quarterly statement onto its existing program.

Michigan’s program makes some gestures toward conservative ideas for health-care reform, but it falls woefully short of what Indiana was able to accomplish in 2007 with a waiver from the Bush administration. The flaws of the Michigan expansion are not because of a lack of vision from Governor Snyder or other state leaders. The Healthy Michigan program was simply the best deal they could get from the Obama administration for expanding Medicaid, and it is an improvement, however small, on the current Medicaid program.

As for Indiana’s program, it received only a one-year waiver extension from the administration for its current program — “in order to not disrupt the coverage currently afforded in Indiana as the state continues to consider its coverage options” — but it isn’t receiving any more money to expand the program. Without another extension, the Healthy Indiana Plan will end at the close of the year.

Ironically, the refusal of the Obama administration to allow greater experimentation and innovation is preventing more people from obtaining insurance in places like Indiana. Some red states have decided that the Medicaid money is too good to give up, but state lawmakers have largely had to check their conservative principles at the door in exchange for the funds.

This is health-care expansion under Obama: Republicans are left to tinker at the edges of government programs, their hands tied by restrictive regulations and the administration’s liberal ideology, while truly innovative programs that don’t treat health care as a universal entitlement are left to languish.

— Andrew Evans is an assistant editor at National Affairs in Washington, D.C.