Twelve Reasons to Say No
Virginia got it right; Florida got it wrong.

Virginia governor Bob McDonnell


Avik Roy

7. Medicaid’s undercompensated care is a bigger problem than providing uncompensated care for the uninsured.

In policy circles, there is much discussion of the “uncompensated care” problem, whereby the uninsured use emergency rooms to get routine care. (Under federal law, emergency rooms must serve all who come.) But the problem of undercompensated care — stemming from the fact that Medicaid and Medicare do not pay hospitals enough to cover their beneficiaries’ costs — is a larger one, and contributes to an equally large amount of inappropriate emergency-room use. In Ohio in 2010, for example, hospitals spent $1.1 billion on charity care, but lost $1.3 billion on Medicaid patients.

8. Expanding Medicaid will expose Virginia to immense amounts of fraud and waste.

Official federal estimates show that at least 10 percent of Medicaid payments are fraudulent. Many prosecutors believe that the figure is closer to 30 percent. Unfortunately, health-care providers often aggressively resist efforts to police fraud and waste because excess Medicaid spending frequently accrues to their benefit.

In neighboring North Carolina, state auditor Beth Wood, a Democrat, recently found that the state’s Medicaid program endured $1.4 billion in cost overruns each year, including $375 million in state dollars. As a result, North Carolina has decided not to expand its Medicaid program. Before considering a Medicaid expansion, Virginia should conduct a similar audit of the program and demand flexibility for reform.

9. Virginia will be exposed to higher Medicaid costs when Washington recalculates its matching payments.

The federal government, under the Affordable Care Act, will cover most of the cost of the Medicaid expansion in the near term. But it is almost certain that, in outlying years, the federal government will attempt to reduce entitlement spending by reducing its matching payment for the expansion. Indeed, President Obama proposed doing just that in his fiscal-year 2013 budget, which would have reduced Medicaid spending by $100 billion over ten years.

In addition, many states have made extra money from their Medicaid programs by taxing providers and insurers for participating in the program. These accounting gimmicks will almost assuredly be prohibited in future federal budget negotiations, leaving states on the hook for more Medicaid spending.

10. By rejecting the Medicaid expansion, Virginia encourages other states to do the same, reducing waste of taxpayer dollars.

Many states still are deciding whether or not to expand their Medicaid programs under the ACA. A principal justification that Medicaid advocates use is that declining to expand Medicaid means that a state’s taxpayer dollars go to fund Medicaid in other states.

But the large “blue states” that have gone along with the Medicaid expansion will see relatively little in increased federal spending because they have already expanded their programs beyond the ACA mandate. Indeed, only half of the funds dedicated to the Medicaid expansion are being spent outside the South. Large “red states,” on the other hand, where the ACA’s Medicaid dollars are directed, have mostly rejected the expansion.

Virginia, as a large swing state, will set an example to other states that are deciding what to do about the Medicaid expansion. Ten states have already rejected the expansion, with twenty others undecided. If Virginia joins these ten, it will do much to limit spending of Virginia taxpayer dollars by other states.

11. Medicaid will worsen the cycle of dependence and harm the economy.

As noted above, a significant amount of Medicaid spending goes to fraudsters. All Medicaid spending takes money out of productive sectors of the economy and re-routes it as transfer payments to health-care providers, the vast majority of whom are underpaid for their services and a few of whom are bilking the system

Most important, Medicaid imposes a huge disincentive on the poor to find work because they fall out of the program once they start earning better incomes. If Virginia chooses not to expand its Medicaid program, able-bodied adults who seek work and who successfully cross the poverty line should have the option of subsidized private insurance. This should be the focus of the Commonwealth’s negotiations with Washington — seeking a united front with other states to demand much more flexibility in expanding coverage but allowing people the dignity of private insurance instead of being trapped in a failing public program. Private insurance is a morally superior approach, one that will increase the incentives for employment and stimulate the economy through privately generated income rather than the shell game of transfer payments.

12. Exchanges will provide better health outcomes, far less fraud, and fiscal certainty.

If Virginia expands its Medicaid program, as many as 250,000 Virginians between 100 and 138 percent of the federal poverty level will be added to the Medicaid program. The Commonwealth should demand more control over how subsidy money is distributed to Virginians so they can seek higher-quality private insurance. Subsidized private insurance would pay doctors and hospitals more than Medicaid will, affording Virginians access to a broader network of health services, and in turn will produce better health outcomes.

Private insurers are much better at rooting out waste and fraud than are public insurers, reducing the incentive for Medicaid fraudsters to come to Virginia. A carefully negotiated compromise will mean the Commonwealth is protected when Washington attempts to increase Medicaid costs to Virginia later on. And, most important, it will allow Virginia residents the opportunity to get better quality of care and coverage through private insurance.

 Grace-Marie Turner is president of the Galen Institute, and Avik S. Roy is a senior fellow at the Manhattan Institute.