Federal Medicaid Bailout Won’t Solve States’ Problems

Published March 1, 2009

Unemployment in the United States is growing with the current recession, while state tax revenue is falling, putting financial pressure on state governments. More people are becoming eligible for Medicaid and the State Children’s Health Insurance Program, but the states don’t have the funds to cover them. So the governors are asking Washington for $40 billion in financial assistance to help cover the shortfall.

Before a federal bailout of state health care programs is approved, taxpayers deserve assurance their tax dollars would be spent in the most responsible way possible. There are many reasons to believe enrolling the newly unemployed in Medicaid and SCHIP is not the best use of the money.

Benefits Worse than Advertised

While Medicaid and SCHIP offer very generous benefits on paper, the reality is they pay providers so poorly their beneficiaries have difficulty getting doctors to see them. A study published in Health Affairs found fully one-third of the nation’s uninsured children had been enrolled in one of these programs within the past year but their parents had dropped out because the programs did not provide actual or reliable access to health care services.

There is also a stigma associated with what many working people see as “welfare medicine.” Many of these families would rather be uninsured than be on Medicaid.

In addition, once the economy turns around many of these folks will regain employment, and thus no longer will be eligible for Medicaid or SCHIP. It is extremely difficult for most families to learn the policies and procedures of a whole new insurance program, especially if it is for only a few months of eligibility.

‘Perverse Incentives’

Being on Medicaid also creates perverse incentives. Once a worker is re-employed, his or her family no longer will be eligible for the public program, but the new job may have a waiting period before he or she is allowed to enroll in the employer-provided coverage. So the family will be in limbo between public and private coverage … and thus uninsured once again.

As a consequence, some heads of household might be reluctant to become re-employed, if taking a new job also means the loss of public health coverage.

Most of the newly unemployed have access to health insurance coverage either through COBRA continuation of their employer’s plan for 18 months, or by purchasing non-group coverage in the private market. Of course, because they are unemployed they may not have the financial ability to pay the premiums. The issue, then, is not the availability of coverage but the ability to pay for it.

Help Families Retain Coverage

Instead of enrolling these families in a public health insurance program, the states would do much better to use the funds to help them retain the coverage they already have. Such premium assistance would allow for continuity in their coverage and in the medical services they receive. They would not have to find a new doctor and could continue whatever treatments they are currently receiving.

They also would be able to maintain the coverage if they become re-employed but not yet eligible for the new company’s benefits. They may no longer be eligible for the premium assistance from the state, but because they now have regained their incomes they can use their own money to retain their coverage until they can get on the company plan.

Overall, federal assistance to help states with the rising burden of the newly unemployed may be necessary. But such funds should be targeted to helping people maintain the insurance coverage they already have, instead of enrolling them in an inadequate public program.

Greg Scandlen ([email protected]) is director of Consumers for Health Care Choices at The Heartland Institute.