The Corner

Mike Pence’s Medicaid Plan: Neither Conservative nor Federalist

The announcement by Governor Pence of Indiana to that he would expand the state’s Healthy Indiana Plan (let’s call it HIP 2.0) as an alternative to Medicaid to cover uninsured Indianans wasn’t something I expected. Pence is the man who, as a congressman, voted against Medicare Part D and No Child Left Behind, and as governor has said he wants to make federalism a central principle of governance. If the plan is accepted by the Obama administration, it would expand coverage to an additional 350,000 Indianans and bring an additional $17.3 billion in federal funds to the state over the next ten years.

In a move that we have seen over and over again when Republicans want to pretend that an increase in government is really a market-based solution that ought to be supported by conservatives, HIP’s advocates argue that that it’s consumer-driven and free-market-friendly. Here’s how it’s being sold:

  • Enrollees would be asked to make contributions to their health-savings accounts that range from $3 to $25 per month.
  • A new “HIP Employer Benefit Link” plan is being created to support participation in employer-sponsored insurance plans.
  • The Personal Wellness and Responsibility (POWER) account, modeled after a Health Savings Account, will be maintained, remaining the source of funding from which members would pay for medical services.
  • It facilitates linkages to employment services and rewards individuals for securing employment and moving off public assistance.

The reality is quite different.

Writing about the the original plan, which was implemented by Pence’s predecessor, Governor Mitch Daniels, Cato’s Michael Cannon argued on NRO back in 2011 that HIP is just as fiscally unsound as ACA and misallocates Medicaid costs onto federal taxpayers. HIP increases dependency rather than reduces it, he argues. Cannon writes:

Daniels and his conservative fans make much of the fact that this “Healthy Indiana Plan” (HIP) offers high-deductible coverage combined with a taxpayer-funded health savings account, whereas Obamacare simply expands traditional Medicaid with its notoriously lousy access to care. But that’s just another way of saying Daniels made Medicaid more attractive: Under his plan, the government hands out coverage plus something a lot like cash.

Conservatives should not consider it a selling point, then, that 94 percent of HIP enrollees are satisfied with the program, or that HIP enjoys a much higher retention rate than the regular Medicaid program, or that HIP’s waiting list is now 50,000 Hoosiers long. Health savings accounts are supposed to reduce dependence on government. Daniels is using HSAs to expand dependence on government.

Dean Clancy over at the Federalist summarizes the whole thing very well:

The Pence plan is in fact a straight Medicaid Expansion with a few “conservative” bells and whistles added, such as personal spending accounts for enrollees and modest cost-sharing provisions; but these will almost surely be rejected or gutted by Obama’s bureaucrats, with whom Pence must negotiate. (Indiana’s legislature will almost certainly rubber-stamp whatever Pence and Obama agree to.) . . .

Medicaid is a deeply flawed program, one that limits poor people’s access to doctors, offers them inferior health outcomes, and, according to a new NBER study, encourages them to prefer dependence over work.

Medicaid’s problems are a result of its joint federal-state structure, which is truly diabolical, incentivizing politicians at all levels to expand welfare dependency while making sensible reforms well-nigh impossible.

As a result, Medicaid is now among the biggest drivers of federal and state deficits, has become the default health plan for one in five Americans, and pays for half of all US births.

But the most ludicrous argument that many Republican governors are using to expand Medicaid is the idea that if they don’t take the money, they’re losing out. It is true that whether or not a state expands the program, it will have to shoulder the cost of other states’ expansions. However, in order for a state to get other states to pay for most of its expansion, it has to burden its own taxpayers with substantial new costs, too. Medicaid expansion isn’t a free lunch. I laid out a few of these reasons in the Richmond Times Dispatch this Sunday for voters in Virginia, which has so far rejected the expansion, but many of them apply to other states considering it:

  • The federal government will cover 100 percent of the program costs at first, but the state would still have to foot the bill for administrative costs, which represent an average of 5.5 percent of what the total program costs.
  • After three years, the federal government will reduce its subsidy to 90 percent of costs — and this is assuming it keeps its commitment over time in the face of its own financial problems.
  • Federal money comes with costly strings attached that are never accounted for in the original cost estimates, and the programs rarely deliver on the promises made. (Think about No Child Left Behind)
  • The expansion reduces the state’s ability to solve its own problems in a way that is best suited for its needs — in other words, it reduces, not encourages, federalism.
  • The program already has a massive overpayment problem – payments go to people who aren’t eligible or some eligible people get more than they should – and that problem is only going to get bigger.
  • The federal support for Medicaid creates massive opportunity costs for the state to spend on other programs (because they’re not as generously subsidized by the feds) so the state spends more on it at the expense of other programs, such as cash transfers and transportation.

And then there’s the fact that Medicaid has been proven to be a terrible way to deliver health care to poor people. For an excellent explanation as to why, read my colleague Robert Graboyes’s chapter, “Medicaid and Health,” in Mercatus’s new book on Medicaid. The hope in Indiana, of course, is that people will be able to take their government money and buy health care where they want to. But that’s a long shot and it is still an expansion of government. So I ask Mr. Pence and others: What is the benefit of expanding Medicaid if it doesn’t seem to improve the health outcomes of the beneficiaries? Lawmakers should look for solutions to do that rather than claim that this kind of band-aid solution is conservative or federalist.





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