Avoiding the Medicaid Trap

Published January 22, 2013

Consumer Power Report #357

So that Medicaid expansion – it’s very tempting, isn’t it? All those Medicaid dollars just sitting there, free of charge from the federal coffers … and you get to claim you’ve expanded coverage for hundreds of thousands of people in an instant, at no cost to the state. It all sounds too good to be true.

That’s because it is.

Sebelius, in effect, gave Arizona two choices: opt out of Obamacare’s Medicaid expansion, and end coverage of childless adults through the program, or expand Medicaid as Obamacare attempted to mandate, for all individuals below 133 percent of the federal poverty level.

Given this choice, Brewer went with the choice Sebelius favors: fleecing the taxpayers of other states. “For a state match of a little over $154 million in FY 2015,” Brewer’s office asserts, “the State can draw into its healthcare sector $1.6 billion in federal funds – a return on investment of more than 10-to-1.” Note Brewer’s abuse of the terms “investment” and “return,” given that what she’s really talking about is coercing out-of-state taxpayers to subsidize the previous mistakes that her state has made.

And that’s not the only way Brewer is hoping to get at federal dollars. She also proposes dramatically increasing taxes on hospitals in order to spend more money on Medicaid: a classic shell game that profligate states use to get more federal Medicaid dollars for each net dollar spent by the state.

Her excuse for this maneuver? It’s been done before. “The provider assessment would not be an unprecedented step, as Arizona already charges a 2% insurance premium tax [and] a provider tax on nursing homes in order to draw federal funds for special payments to the homes.” Translation: Arizona residents who pay for their own insurance face higher costs, so that Arizona can fund a Medicaid expansion that it can’t afford.

Gov. Brewer’s view as to Medicaid’s “return” on “investment” is flawed in other ways. She is putting her state on the hook for part of the cost for the substantial number of Arizonans who had always been eligible for Medicaid, but hadn’t signed up for the program. This “woodwork” phenomenon – what we might call Medicaid’s pre-existing condition – is crucial, because the state government is still on the hook for a big chunk of the Medicaid funding for these previously eligible individuals. A 2010 study by two Harvard researchers found that barely half of Arizonans who were eligible for Medicaid in 2010 had signed up for the program.

That study is here, along with more on why states have a financial incentive to opt out of the Medicaid expansion. The truth is that Brewer and other governors who accept this “free” money are raising taxes on their states’ taxpayers by millions and in some cases billions of dollars. And the states should expect that future administrations will cut back on the currently generous matches within Obamacare – considering that the administration is already entertaining extensive cutbacks as cost-saving measures.

There are also cutbacks to Medicaid as some states expand their programs under the health care law. Physicians groups worried last month that lawmakers would free up $12 billion by eliminating part of the law that for two years boosts Medicaid payments for primary-care services to the Medicare rate – quite a bit higher in most states. Congress has left that alone – but it could be on the table in the next spending fight.

And in the past, Obama has suggested a blended rate for Medicaid populations whose care is reimbursed under different rates. While the rate could save $18 billion, according to a White House estimate, it could discourage states from expanding their Medicaid programs, because they’d be reimbursed at a lower rate.

This is an inevitability, and for states that already have expanded their programs, it would mean the feds putting them on the direct hook for the costs of their program – with all the political penalties such steps would entail.

There’s no such thing as a free lunch. Jan Brewer and other governors would be wise to remember that.

— Benjamin Domenech



Exchanges have become too toxic, politically, for the Obama administration to sell them.

The Obama administration is re-branding the central component of its signature healthcare law.

The Health and Human Services Department suddenly stopped referring to insurance “exchanges” this week, even as it heralded ongoing efforts to prod states into setting up their own. Instead, press materials and a website for the public referred to insurance “marketplaces” in each state.

The change comes amid a determined push by conservative activists to block state-based exchanges in hopes of crippling the federal implementation effort.

Dean Clancy, the director of healthcare policy at FreedomWorks, said HHS’s decision to ditch the “exchanges” label shows that opponents of the healthcare law are succeeding.

“I think the patient-centered care movement can chalk up a minor victory here,” he said. “If they’re trying to re-label, it means they’re flailing.”

FreedomWorks runs a Web site that’s trying to build grassroots opposition to the insurance markets. The effort has taken on heightened importance in the wake of Obama’s reelection, which killed off any chance of repealing Obamacare in Congress.

IWF’s Hadley Heath has more on what exchanges require of states.

SOURCE: The Hill


Sarah Kliff reports for the Washington Post:

For most of Obama’s first term, universal coverage was held in limbo. It survived a heated congressional debate and a Supreme Court challenge. Obama’s reelection secured the Affordable Care Act’s future, and kicked implementation into full gear. But that poses its own challenges.

The health-care law’s requirement to buy health coverage – and the insurance subsidies for millions of Americans – roll out Jan. 1, 2014. The list of what needs to happen between now and then is massive. The federal government will need to set up as many as 25 health insurance exchanges in states that have not decided to take on the task themselves.

These are systems that industry experts say usually take about two to three years to build. They have to figure out who is eligible for which federal programs, ideally in real time. The Obama administration has nine months left, as the exchanges launch for open enrollment Oct. 1, 2013.

The coverage expansion will kick off after already suffering a significant blow: The Supreme Court ruled in June that the federal government could not require states to expand Medicaid up to 133 percent of the federal poverty line. Now that it’s optional, only 22 states have committed to moving forward with that provision, which was meant to expand insurance to 17 million Americans.

The Internal Revenue Service must start administering the individual mandate, which begins as a $95 fine for not carrying coverage in 2014 (it rises to $695 over the course of three years). There’s already some worry that the individual mandate may not be strong enough: Healthy Americans could decide to forgo coverage and pay the fine, leaving only the sick purchasing coverage.

A similar mandate worked well in Massachusetts: The state now has a 98.1 percent insurance rate. Will it work in Oklahoma, where a quarter of the residents don’t buy the required auto insurance for driving? Some experts are skeptical.

Regulations on the Individual Mandate are expected soon. Back to Kliff:

There’s huge work to be done to let people know that these new benefits – and requirements – even exist. As of November, 78 percent of the uninsured Americans likely to qualify were unaware of their new options. Nonprofit groups are putting millions of dollars into campaigns to make sure Americans know about the health-care law.

“I truly believe there’s nothing more important for the president’s legacy than the number of people this law impacts,” Anne Filipic, a former White House official who now runs the nonprofit Enroll America, told me in a recent interview. “It’s an enormous task. When you look at every piece of what we need to do and the fact that nearly three-quarters of the uninsured aren’t aware, that obviously means we have a lot of work to do.”

That all happens in the coming year. At this time next year, the publicity blitz will be well underway, the health exchanges up and running and the insurance subsidies heading out the door. By this time next year, it will be illegal not to carry health insurance coverage.

The longer-term test for the health-care law will have less to do with extending coverage and more to do with another key health-care challenge: Costs have grown faster than the rest of the economy for decades. They wiped out the past decade’s worth of wage growth and present a huge challenge for the federal budget moving forward.

That last problem of rising costs could pose significant problems for the administration as it implements the law. Even the president is conceding this now.

SOURCE: Washington Post


Grace-Marie Turner writes at Forbes on how the fiscal cliff deal trimmed at Obamacare’s edges:

Farewell, CLASS: The CLASS Act, a long-term-care insurance program that had been championed by late Sen. Edward Kennedy, was blessedly eliminated. The administration had said last year it couldn’t figure a way to assure the program would be financially solvent for 75 years before it was put into place – as the law requires. Health Secretary Kathleen Sebelius wrote in a 2011 letter to Congress that “Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time.”

Monthly premiums could have been as high as $3,000 under some scenarios, the administration said, making it unlikely there would be widespread enrollment. Sen. Max Baucus (D-MT) had called the CLASS program “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.” A commission on long-term care was authorized to take another look at the problem and potential solutions.

Goodbye, Co-ops. Funding also was struck for another liberal favorite – non-profit health insurance “co-ops.” The Fiscal Cliff deal eliminated most of the $1.4 billion in remaining funding for these health plans.

The ObamaCare health insurance co-ops were created to compete with the major insurance companies, but they would have been run by people who basically know nothing about health insurance – but with billions of dollars in government money at their disposal.

Initially, the health law allocated $6 billion to help start the co-ops. In 2011, Congress reduced that funding to $3.4 billion as part of broader budget cuts. In the past two years, the Department of Health and Human Services has awarded nearly $2 billion in loans to 24 proposed state co-ops. Those loans won’t be affected by the cut.

“We were blindsided by the elimination of funds,” said John Morrison, president of the National Alliance of State Health Cooperatives. “The health insurance industry is getting its way here by torpedoing co-ops in the 26 remaining states.”

But those running the co-ops had little or no experience with the complexities of health insurance, and some House Republicans said co-op funding was being funneled to the administration’s political friends, such as the Freelancers Union in New York. Getting rid of additional co-op funding is another good call by Congress.

SOURCE: Forbes


Walter Russell Mead on the politics of cronyism:

The Senator from Massachusetts did what diligent Senators do; he added a provision to the Affordable Care Act to allow his state’s hospitals to increase their Medicare reimbursements by a factor of ten:

Here’s how Massachusetts gets extra money: Hospitals in urban areas have to be paid at least the same amount as rural hospitals. Massachusetts only has one rural hospital – a 19-bed facility on Nantucket island. So, the Nantucket Cottage Hospital sets the floor for every hospital in the state.

But because Nantucket is so wealthy, its cost of living is high – and thus so are its Medicare payments. That drives up the payments for every other hospital in the state. And under Kerry’s provision in the Affordable Care Act, hospital payments come from a nationwide pool.

If the provision remains in place, Massachusetts’s payments will rise over the next decade from $367 million to about $3.5 billion. The pool operates on a zero-sum basis, so all the money the Bay State gets will be funded by cutbacks from other states.

SOURCE: American Interest


Unexpected consequences – adjuncts get the shaft.

The federal health-care overhaul is prompting some colleges and universities to cut the hours of adjunct professors, renewing a debate about the pay and benefits of these freelance instructors who handle a significant share of teaching at U.S. higher-education institutions.

The Affordable Care Act requires large employers to offer a minimum level of health insurance to employees who work 30 hours a week or more starting in 2014, or face a penalty. The mandate is a particular challenge for colleges and universities, which increasingly rely on adjuncts to help keep costs down as states have scaled back funding for higher education.

A handful of schools, including Community College of Allegheny County in Pennsylvania and Youngstown State University in Ohio, have curbed the number of classes that adjuncts can teach in the current spring semester to limit the schools’ exposure to the health-insurance requirement. Others are assessing whether to do so, or to begin offering health care to some adjuncts.

Stark State’s move came as a blow to Mr. Balla, who said he earns about $40,000 a year and cannot afford health insurance.

In Ohio, instructor Robert Balla faces a new cap on the number of hours he can teach at Stark State College. In a Dec. 6 letter, the North Canton school told him that “in order to avoid penalties under the Affordable Care Act … employees with part-time or adjunct status will not be assigned more than an average of 29 hours per week.”

Mr. Balla, a 41-year-old father of two, had taught seven English composition classes last semester, split between Stark State and two other area schools. This semester, his course load at Stark State is down to one instead of two as a result of the school’s new limit on hours, cutting his salary by about a total of $2,000.

“I think it goes against the spirit of the [health-care] law,” Mr. Balla said. “In education, we’re working for the public good, we are public employees at a public institution; we should be the first ones to uphold the law, to set the example.”

Irene Motts, a spokeswoman for Stark State, a two-year community college, said the new rules were necessary “to maintain the fiscal stability of the college. There are a lot of penalties involved if adjuncts go over their 29 hours-per-week average. The college can be fined and the fines are substantial.”

SOURCE: Wall Street Journal