As Medicaid Rolls Rise, State Budgets Will Soar, Access Will Sink

Published May 31, 2016

Despite assurances the Medicaid expansion included in the health care legislation signed into law by President Obama in March is not an unfunded mandate foisted on the states, many states will find their budgets bloated with new Medicaid spending.

The new reform is projected to cover the insurance costs of 32 million previously uninsured U.S. residents. Almost half this number will be enrolled in Medicaid, the public coverage program for the poor.

ObamaCare expands Medicaid eligibility to virtually all legal U.S. residents with incomes under 133 percent of the federal poverty level, around $30,000 per year for a family of four. To make the legislation more palatable to the states, the federal government has promised to cover all costs until 2016 and 90-95 percent of Medicaid expansion costs beginning in 2017, in addition to sweetheart deals for selected states as an inducement to garner their representatives’ support.

Texas Exemplifies Problem

Although the federal government will cover much of the cost of the expanded eligibility, those already eligible but not yet enrolled (estimated nationally at 10 million plus) will be the responsibility of the states under the original federal matching program.

A good case in point is Texas. Just over four million people, mostly pregnant mothers and children, are enrolled in the Texas Medicaid Program. Under the new laws expanding eligibility, 2.1 million additional adults and children are expected to enroll. Of these, 655,000 were already eligible but not enrolled. This group is likely to be swept up and enrolled when the individual mandate takes effect.

The cost of expanding Medicaid enrollment in Texas is estimated to be $191 billion over 10 years. Of this, Texas’ share comes to $27 billion, according to recent testimony by Thomas Suehs, executive commissioner of the Texas Health and Human Services Commission. Medicaid currently accounts for about 27 percent of Texas’ state spending, or $862 dollars per Texas resident.

A simple, back-of-the-envelope calculation suggests it is likely Medicaid will consume nearly one-third of Texas’ budget when the expansion begins in 2014 and perhaps four-in-ten dollars by 2023.

This amounts to about $3,500 per Texas resident, depending on future patterns of population growth. And Texas is likely to grow at rates faster than other states, so this estimate is probably too conservative.

Low Reimbursements, Lower Access

Another question is: Who will treat all these newly enrolled Medicaid patients? Medicaid reimbursements have traditionally been so low—often no more than $25 per office visit—that few physicians want to treat patients enrolled in the program. Physicians report losing money every time a Medicaid patient enters their exam room.

Although it varies from state to state and from one physician specialty to another, on average Medicaid reimburses physicians only about 60 percent of what private insurers pay in physician fees.

There are provisions in the new health care law to increase Medicaid rates to be on par with Medicare rates (about 81 percent of private insurers’ reimbursements). This only lasts for two years (2013 and 2014), however, before dropping back to the original level in year three.

Many people newly enrolled in Medicaid will find they have less access—not more—to a physician. Various studies have found the uninsured paying cash have quicker access to a physician than Medicaid enrollees.

Inferior Medicare

Michael Bond of the Florida-based James Madison Institution recently found the emergency room visitation rate for Medicaid enrollees (80.3 visits per 100 persons) was almost twice as high as for other patients. Medicaid beneficiaries face more difficulties scheduling timely follow-up care after initial treatment for an illness than those with private insurance.

And when Medicaid beneficiaries do gain access to providers, they receive inferior care when compared with other patients.

Medicaid is on a course to crowd out every other function of state government over the course of the next few decade as a result of the federal health care overhaul. State—and federal—taxpayers will find their tax burden rising as greater amounts are spent on public coverage.

John C. Goodman ([email protected]) is president, CEO, and Kellye Wright Fellow of the National Center for Policy Analysis.

Internet Resources

Backgrounder on Medicaid Reform, Michael Bond: