Politics & Policy

Twelve Reasons to Say No

Virginia got it right; Florida got it wrong.

While Florida governor Rick Scott has endorsed Medicaid expansion, Virginia governor Bob McDonnell has taken a different stance.

“Please understand that I cannot and will not support consideration of an expansion of Medicaid in Virginia until major reforms are authorized and completed, and until we receive guarantees that the federal government’s promises to the states can be kept without increasing the immoral national debt,” McDonnell wrote in a letter to the General Assembly’s budget chairmen.

Leading legislators, including Virginia house speaker Bill Howell, also have indicated they cannot support Medicaid expansion and are insisting on major reforms to the program, including giving states more control over spending and benefits. The final vote by the General Assembly is expected before adjournment this weekend, but Democrats are threatening to hold up transportation funding if Republicans don’t agree to expand Medicaid. Governors and legislators are waging similar battles in other states.

Here are twelve reasons Governor McDonnell is correct in his decision and Governor Scott is wrong.

1. Virginia’s Medicaid spending will explode.

According to a forthcoming publication from the Heritage Foundation, Medicaid spending will increase dramatically as the federal match rate for the expansion population begins to drop and as more and more Virginians enroll in the program – as the data from Heritage in this chart indicates.

2. Medicaid harms the poor.

The Medicaid program is so badly broken that it actually harms the people it is intended to serve. Mountains of clinical literature show that, on average, patients on Medicaid have poorer health outcomes than those with no insurance at all. The largest such study by far, conducted by surgeons at the University of Virginia, examined outcomes for 893,658 individuals undergoing major surgical operations from 2003 to 2007. It found that patients on Medicaid were 13 percent more likely to die in the hospital after surgery than those with no insurance, even when adjusting for age, gender, income, region, and health status. Medicaid patients were 97 percent more likely to die than those with private insurance.

This is because the Medicaid program pays doctors and hospitals far less than private insurers do. In 2008, the Virginia Medicaid program paid doctors 29 percent less than private insurers did. In California and New York, states with expansive Medicaid programs, Medicaid pays doctors 62 and 71 percent less, respectively. As a result, many doctors refuse to take Medicaid — and when Medicaid patients can’t get predictable access to care, their cancers go undiagnosed and their heart conditions go unmanaged. Access to specialists is particularly challenging. When Medicaid patients finally do get care, their diseases are often more advanced and more difficult to treat. This is worse than having no insurance at all, because uninsured people pay out-of-pocket, which doctors accept, compared with Medicaid, which underpays doctors and requires lots of form-filling and arguing. Virginia should instead insist that Washington provide more flexibility with Medicaid spending so that the Commonwealth can provide them the dignity of private insurance.

3. Medicaid’s access problems will get worse as more doctors drop out.

According to the Urban Institute, there is considerable concern about whether there will be enough doctors to see the influx of new Medicaid patients.  While Obamacare provides for a two years of increased federal Medicaid payments for primary-care physicians, it seems unlikely there will be a permanent increase in participation among privately practicing physicians since the increase in federal payments for primary-care physicians will last only two years. The biggest problem in Virginia will be in developing sufficient capacity in the southern and southwestern parts of the state, where enrollment increases will be the largest and provider shortages the greatest.

4. Claims about job creation are exaggerated.

The claim that Medicaid will “create 30,000 jobs” in Virginia uses out-of-date Keynesian models that have been eminently disproven over the last six years. These same forecasts were used to predict that the American Recovery and Reinvestment Act of 2009 (ARRA) — commonly known as the “stimulus” — would bring the national unemployment rate below 6 percent by 2012. Instead, the unemployment rate has remained around 8 percent.

Those who claim that the Medicaid expansion will create jobs should be required to explain, specifically, how their forecasting models differ from those used to project unemployment rates under the ARRA.

5. Claims about coverage expansion are exaggerated.

Studies that claim 400,000 Virginians will be denied coverage if the Commonwealth doesn’t expand Medicaid do not account for the crowding out of private insurance. Medicaid will end up replacing higher-quality, employer-sponsored health coverage for tens of thousands, if not hundreds of thousands, of Virginians. While these individuals will still have “coverage,” and therefore will not increase the ranks of the uninsured, the quality of their coverage will meaningfully decrease.

Coverage is not the same thing as care. Medicaid has the worst health outcomes of any insurance program in the developed world. While Medicaid recipients have a card saying that they have health insurance, they have very poor access to physicians. This makes it hard for them to get care when they need it, as proven by the University of Virginia study cited above. Expanding Medicaid will create a cascade of unintended consequences for Virginia taxpayers and citizens.

6. Medicaid raises premiums for those with private insurance.

One of the hidden costs of expanding Medicaid is its impact on people with private insurance. Because both Medicaid and Medicare underpay doctors and hospitals for their costs of care, these providers make up the difference by charging higher rates to private insurers. In 2008, Milliman, the leading insurance consulting firm, estimated that the average American family with private health insurance paid $1,800 more in premiums because of this cost-shifting phenomenon. By dramatically expanding Virginia’s Medicaid program, the Commonwealth will impose a hidden tax on the millions of Virginians with private insurance.

Because expanding Medicaid leads hospitals and doctors to shift costs onto patients with private insurance, this makes private insurance less affordable and increases the number of people without insurance.

Therefore, expanding Medicaid will lead to more people losing private health insurance — a fact that is not included in the standard assessments of how much Medicaid expansion would increase coverage.

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.


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