Research & Commentary: Gov. Mike Pence’s Medicaid Expansion

Published September 5, 2014

Expanding Medicaid can have repercussions beyond state budgets and the health care industry. Increasing government spending has a direct effect on the economy, shifting dollars that would have been spent in the private economy into state programs. It is important to remember government spending creates little or no income or economic growth; it is merely the redistribution of tax dollars taken from the pockets of taxpayers. 

Indiana Gov. Mike Pence’s proposal to expand the state’s Medicaid program, known as the Healthy Indiana Plan (HIP), hides many flaws behind a veneer of free-market reform. The plan rolls back many cost-management components and transforms the limited HIP program into a substantial new entitlement for adults. It would greatly expand Medicaid, adding more than 284,000 able-bodied childless adults and 91,000 parents to the eligibility pool for Medicaid, an increase of nearly 700 percent. 

A new study released by Federalism in Action examined the effect of increased government spending on entitlement programs such as Social Security, Medicare, and Medicaid and found if the state allows Medicaid to expand it is likely to pay a steep economic price as public-sector spending crowds out the private sector. The authors warn legislators against becoming too reliant on Medicaid to meet the health care needs of the state’s population, as federal dollars are not free money. 

Specifically, the study found expanding Medicaid in Indiana would decrease average individual income and crowd out the private sector. “Expanding Medicaid in Indiana by $2.9 billion would change the composition of Indiana’s personal income toward public sector spending and shrink the private sector by up to 1.14 percentage points. That means in the next few years, the average household in Indiana would see their income drop by up to $3,721, or the number of jobs in the state will be reduced by 176,928. The overall loss in personal income would be up to $9.5 billion ($3,721 multiplied by 2,552,000 households).” 

This analysis cites Maine and New Hampshire as additional examples of the negative effects of government spending. Despite sharing many similarities such as geography, climate, and demographics, the two states have grown economically at dramatically different rates. The authors point to Maine’s creation of a sales tax in 1951 as the point where New Hampshire began to pull away from Maine economically. It also notes Indiana’s private sector shrank as taxes and spending rose over the decades. 

Opponents of Pence’s Medicaid expansion note the program is already stretching states thin financially and has a poor track record of providing cost-effective and efficient care for those in need. Medicaid is currently the largest category of state spending: According to the National Association of State Budget Officers, Medicaid spending accounts for 23.6 percent of state government expenditures

The original HIP took important steps to manage costs and capped enrollment, but Pence’s plan undermines several of these measures, increases costs and enrollment, and creates a new, significant health insurance subsidy for able-bodied adults and their children. If Indiana legislators allow this expansion of Medicaid and other government entitlement programs and increase public spending, the state risks undermining its recent economic recovery. Instead of expanding on a flawed model, legislators should turn instead to reform options like those piloted in Florida that reduce costs and offer better care to patients in the existing system. 

The following documents examine Medicaid expansion, the effects of government spending on the private sector, and Gov. Pence’s plan.

Expanding Medicaid Will Hurt Indiana’s Families, Lower Income and Reduce Jobs
J. Scott Moody explains how Medicaid expansion will reverse the recent post-recession growth in Indiana’s private sector, directly affecting the pocketbooks of Indiana families by reducing employment and personal income.

Ten Principles of Health Care Policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems. 

Mike Pence Proposes Indiana Medicaid Expansion Plan
Kyle Cheney of Politico discusses Indiana Gov. Mike Pence’s proposed Medicaid expansion plan, comparing it to plans proposed by other conservative governors. 

No, Mike Pence, Obamacare’s Medicaid Expansion Isn’t Conservative
John Daniel Davidson of The Federalist argues Pence’s Medicaid expansion is not a conservative reform as he claims: “Indiana joins Michigan and a handful of other Republican-controlled states that are pursuing Medicaid expansion under the guise of a negotiating a ‘conservative’ expansion of Medicaid with the Obama administration. But there is really nothing all that conservative about the state-specific plans to capture federal dollars earmarked for Medicaid expansion.” 

Mike Pence’s Indiana Medicaid Expansion: Rhetoric vs. Reality
Josh Archambault, Jonathan Ingram, and Christie Herrera criticize Indiana Gov. Mike Pence’s HIP 2.0 reform: “Medicaid reform does not require creating a new entitlement for working-age, able-bodied adults without children, which is the main policy objective of Obamacare and HIP 2.0. Lawmakers should instead focus their efforts on fixing the Medicaid program with a proven pro-patient, pro-taxpayer solution to make the program work for the most vulnerable.” 

Mike Pence Tries to Make Obamacare Work
Benjamin Domenech of The Heartland Institute reports on Indiana Gov. Mike Pence’s Medicaid expansion in Indiana, providing comments on HIP 2.0 from several policy analysts. 

Policy Tip Sheet: Medicaid Expansion
Kendall Antekeier of The Heartland Institute explains why states should avoid Medicaid expansion and instead reform this fiscally unsustainable program in ways that offer better care at lower costs to taxpayers. 

Research & Commentary: The Medicaid “Cure”
Kendall Antekeier of The Heartland Institute examines the Medicaid Cure, a pilot program established in five large Florida counties, which uses a premium support model in which 290,000 Medicaid recipients are given a range of premiums and plans from which to choose. 

A Medicaid Cure: Florida’s Medicaid Reform Pilot
The Foundation for Government Accountability explains the success of the Florida Medicaid Cure: “When the patient is the priority, government and HMO bureaucrats are finally held accountable. Costs flatten and patient health and satisfaction improves.” 

The Private Option: Medicaid Expansion by Another Name
Nicole Kaeding of Americans for Prosperity forecasts the effects of the decision to expand Medicaid in Arkansas. 

Why States Should Not Expand Medicaid
Writing for the Galen Institute, Grace-Marie Turner and Avik Roy outline 12 reasons states should not expand Medicaid and should instead demand from Washington greater control over spending to better fit coverage expansion with their states’ needs, resources, and budgets.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at 

If you have any questions about this issue or the Heartland Institute Web site, contact Heartland Institute Government Relations Director John Nothdurft at [email protected] or 312/377-4000. 

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s state government relations manager, at [email protected] or 312/377-4000.