Oregon’s Medicaid Expansion Proves Costly

Published December 27, 2011

Expanding Medicaid coverage to low-income individuals results in better reported health and greater financial well-being, but also higher costs and greater utilization of care, according to a new study by researchers from the National Bureau of Economic Research and the Oregon Health Study Group.

In early 2008 Oregon added 10,000 spots to its state Medicaid program providing health insurance for low-income adults who lack private insurance and do not qualify for Medicaid or Medicare. Program officials decided a lottery would be used to determine who would fill the new spots. Some 90,000 people signed up to participate out of roughly 600,000 Oregonians who do not have health insurance. The Oregon lottery became the first random assignment of health insurance ever done in the United States.

Proponents of President Obama’s health care law have used this study to push for universal health care coverage. But opponents say it merely illustrates that if you give people something for free, they will use more of it.

More Usage of Care

The NBER researchers studied this lottery to gauge the effects of expanding access to public health insurance on the health care use, financial strain, and health of low-income adults, using a randomized controlled design. They found in the year after random assignment, the treatment group selected by the lottery had statistically significant better outcomes, lower out-of-pocket medical expenditures and medical debt, and better self-reported physical and mental health than the control group.

The researchers also found higher health care utilization (including primary and preventive care as well as hospitalization) among the treatment group. Those covered by Medicaid boosted individual spending on medical care by an extra $778, almost a 25 percent increase. They also found decreased individual exposure to medical costs and to out-of-pocket medical expenses.

Plan Is ‘A Placebo’

However, Eric Fruits, president of Economics International Corp., an Oregon-based consulting firm specializing in economics, finance, and statistics, says the Oregon Health Plan essentially functions as “a placebo.”

“It has produced results that are not significantly different from the outcomes seen by the United States as a whole,” he said.

Fruits points out that projecting out over time, the share of Oregon’s population covered by Medicaid sees results virtually no different from that in the rest of the United States.

“I think the lottery demonstrates the broad failure of the Oregon Health Plan and the failure of universal coverage. Once you expand coverage, you have more people using services, so you then have to figure out how to control costs,” said Fruits.

“Oregon’s Medicaid program attempted to do this with a prioritized list that reduced which services would be covered, but the feds wouldn’t let them use it the way they wanted,” Fruits said. “Next they tried cutting provider costs. However, when you begin cutting provider costs you have to worry about the number of providers willing to participate in the program.”

Costs Consistent with Averages

Total Medicaid expenditures and Medicaid expenditures per enrollee have closely tracked U.S. expenditures, an indication that the Oregon Health Plan has not been any more or less successful than the U.S. Medicaid system as a whole in controlling costs, according to Fruits.

“The people running the original Oregon health program thought the money was coming out of a spigot that could never be shut off, but then around 2002, it did. So they had to go to a two-tiered plan with imposed premiums and copayments on beneficiaries and access determined through a lottery,” he explained.

“I liken this situation to a balloon. You can squeeze it at one end to contain costs, but then it expands on the other end,” said Fruits. “The mere existence of a lottery in a universal coverage scheme tells you that you can’t expand coverage, control costs, and maintain broad provider participation.”

No Reduction in ER Visits

Steve Buckstein, a senior policy analyst and founder of the Cascade Policy Institute in Oregon, says the program failed to reduce emergency room visits, one of the chief claims supporters advanced before it was adopted.

“Over time, there were just as many people going to emergency rooms, so this program did nothing to curb people’s reliance on using ERs,” said Buckstein.

It’s Rationing

Another problem is that such rationing cannot take place on the national level.

“The program’s administrators tried to show that there was a lot of unmet demand for health care in Oregon, and they expended great effort to sign up as many people as they could for the lottery. In the end, they had only 10,000 spots. So what you’re talking about is inherently rationing of health care,” said Buckstein.

“There hasn’t been enough time to fully assess the program, and all it shows is that if you give people something for free and ask them how they feel about it, then they are going to tell you they feel pretty good about it,” Buckstein added.

Not Nationally Comparable

Dr. Roger Stark, a physician and health care policy analyst at the Washington Policy Center, said it is totally unreasonable to compare the Oregon experience with ObamaCare.

“The Oregon experience is essentially not transferable to any other situation. Oregon had a fixed amount of money, estimated the number of people they could cover, and then limited enrollment in the program via a lottery. In other words, the state did not have enough money to cover all eligible people, but they did have enough money to influence outcomes for those lucky enough to be enrolled,” he said.

“The country does not have an unlimited supply of money, providers, hospitals, etc., to cover all people in the same fashion as Oregon,” said Stark.