Politics & Policy

Medicaid Is Making Insurance Companies Rich

(Photo: Feng Yu/Dreamstime)
But the most vulnerable are paying the price.

Expansion of Medicaid under the Affordable Care Act has been wildly successful in improving the fortunes of one particular group in California — just not the group Medicaid was intended to help.

A recent Kaiser Health News story reported that from 2014 (when the state expanded its Medicaid program under Obamacare) to 2016, Medicaid insurers made $5.4 billion in profits. During this same period, the massive expansion of Medi-Cal (the state’s Medicaid program) saw its enrollment grow to one out of every three California residents. Some California Medicaid insurers’ profit margins increased by 200 to 300 percent after the expansion.

This is problematic because many in the Medi-Cal program are reporting that they receive substandard care compared with the care given to those enrolled in private health plans. The Kaiser article notes, “Two of the most profitable insurers in California — Centene and Anthem — run some of the worst-performing Medicaid plans, according to medical quality scores and complaints in government records.”

Though California is a particularly egregious case of private companies siphoning off billions of taxpayer dollars meant to help the less fortunate, it is by no means the only state where insurance companies are getting rich while the low-income and disabled get stuck with substandard care. In 2013, before expansion, Medicaid managed-care profits totaled $1.1 billion in 34 states and the District of Columbia. In 2015, one year after expansion, that number had more than tripled to $3.9 billion.

The California report reinforces much of what we already know about how Medicaid is (or isn’t) working in the states. A previous study conducted by researchers from Harvard, MIT, and Dartmouth found that for every dollar spent on Medicaid, only 20 to 40 cents represented a direct benefit to enrollees.

This has been a longstanding problem in Medicaid, but expansion took all the worst incentives in the existing program and super-sized them, creating budget crises from Massachusetts to Arkansas and beyond.

No matter how much of a state’s budget gets eaten up by Medicaid, and no matter how many billions of dollars are added to the federal debt, outcomes in Medicaid do not seem to be getting any better. In fact, the best research available indicates that physical health outcomes in Medicaid may be no better than outcomes for the uninsured.

No matter how many billions of dollars are added to the federal debt, outcomes in Medicaid do not seem to be getting any better.

Health care for the poorest and most vulnerable people can, and should, be better in the wealthiest nation in the world. But we can’t get to better health care by trying to shoehorn millions of able-bodied adults into a program that was designed to serve a much smaller population of low-income children, pregnant women, and those with disabilities. Medicaid needs to be scaled back to serve its originally intended recipients. States must also consider reforms to safeguard against fraud and prioritize health outcomes and quality care.

States can also help their low-income able-bodied populations. To achieve and maintain good health, people need access to the dignity and stability of full-time work, an insurance plan that will protect them from the financial risks of catastrophic health emergencies, and the ability to pay for their own routine care with providers of their own choosing.

States can play a role in helping people achieve these goals by creating a pro-growth economic environment with low barriers to work, modest insurance regulations that allow people to access the options they need without artificially inflating costs, and entitlement reforms that encourage independence and self-reliance instead of trapping recipients in a cycle of dependence and poverty.

The California gold rush ended a long time ago. It’s time for the Medicaid gold rush to end, too.

— Melissa Fausz is deputy director of policy at Americans for Prosperity.