Remember the Cornhusker Kickback? It was a giveaway to Nebraska brokered in order to secure the vote of one of its senators for Obamacare. After word of the scam broke, pressure mounted on Congress to drop the provision, which it eventually did.
This week, Nebraska governor Dave Heineman released an analysis of the final bill — and Cornhuskers are hurting. The report from Milliman, a leading independent actuarial firm, estimates that Obamacare will increase Nebraska’s annual Medicaid expenses by somewhere between $75 million and $110 million. Heineman called the price tag “potentially devastating to our state budget.”
Some context: Medicaid is a program that provides health insurance to certain categories of the poor. States design their own programs, but the federal government picks up a portion of the total cost. Typically, the feds pick up about 60 percent of total state Medicaid spending. Nationwide, spending on Medicaid has more than quadrupled over the past two decades.
Many health-policy experts believe Medicaid is a broken program. Its cost for taxpayers is rising dramatically, and mounting evidence suggests that Medicaid recipients receive a lower quality of care than privately insured patients. (A recent study from the University of Virginia even found that Medicaid patients have worse surgical outcomes than individuals without insurance.) Despite these problems, Obamacare was designed to achieve half of its insurance-coverage gains by dumping more people into Medicaid. Obamacare mandates that states expand Medicaid eligibility to include all persons below 138 percent of the federal poverty level.
The expansion begins in 2014, and for the first three years, the federal government will pay 100 percent of the cost of insuring the newly eligible enrollees. After 2016, the federal share will gradually decline, until it reaches 90 percent in 2020. Since states were being asked to pick up such a small share of expansion costs, many states felt they were getting a bargain.
But these states forgot to factor in two very important side effects. First, thanks to the publicity around the individual mandate and Obamacare in general, many individuals will sign up for Medicaid who would have been eligible even under the old criteria. States will receive merely their standard federal reimbursement for these individuals, not the elevated one. Milliman estimates that between 21,700 and 27,700 such Nebraskans will enroll in Medicaid. The estimated annual cost: $26 million to $34 million.
The Cornhusker Kickback wouldn’t have spared Nebraska taxpayers this expense. It applied solely to the expansion population — the individuals who gained eligibility due to the more generous criteria. Had the kickback been retained, federal taxpayers would have picked up 100 percent of the cost of Nebraska’s Medicaid expansion population in perpetuity — the proverbial free lunch for Nebraska. That would have saved Cornhusker taxpayers an estimated $43 million to $60 million per year.
This leads us to the second serious side effect. The federal reimbursement rate encourages careless spending among the states. For every $100 that a state with a 60 percent reimbursement rate spends on Medicaid, $60 seems “free.” The federally funded expansion only makes this distortion worse, by increasing the reimbursement rate for the expansion population.
And of course, that money is not really free. It comes from federal taxpayers — who are, basically, the same people as state taxpayers. From the taxpayers’ perspective instead of the state governments’, there is no reason for states to spend more money on Medicaid than necessary, with or without federal subsidies. In the end, it all comes from pretty much the same pockets.
Further, when costs are passed to a third party, the result is generally waste and inefficiency. It is estimated that 10 percent of Medicaid spending, or $40 billion annually, is lost to fraud. And as the Milliman study shows, the costs to states for this expansion of the Medicaid population will likely wind up being far higher than the administration advertised.
Obamacare’s Medicaid expansion will cost American taxpayers an estimated $80 billion annually and place people in a system with a shockingly poor track record. This is policy malpractice of the first order.
— Brian Blase is a policy analyst in the Center for Health Policy Studies at the Heritage Foundation.