Research & Commentary: Medicaid and State Budgets

Published February 3, 2011

As many legislators are now learning, perhaps the greatest impact President Barack Obama’s health care regime will have on state budgets comes from the dramatic expansion of Medicaid to cover millions of additional Americans.

A program already fraught with problems, Medicaid has terrible outcomes for those individuals forced to use it, and the combination of declining reimbursement rates and the coming eligibility expansions will almost certainly lead to shortages in doctors and higher costs for states.

New research from Cato Institute Senior Fellow Jagadeesh Gokhale provides details on these costs. The study breaks down the numbers for five states—California, Florida, Illinois, New York, and Texas—and the formula can be applied to other states, where the burden is also significant. The rising costs of Medicaid were already bankrupting the program, and Gokhale’s data and other experts’ research show clearly that President Obama’s proposed solution to the nation’s health care ills is actually accelerating and expanding the Medicaid problem to an unsustainable level.

The following documents provide information on the rising costs of Medicaid and the declining number of health care providers participating in the program.


Final Notice: Medicaid Crisis
This study by Cato Institute Senior Fellow Jagadeesh Gokhale shows initial estimates of Obama’s expanded Medicaid’s cost to states are much lower than what states will actually have to pay. Gokhale’s findings—based on Medicaid enrollment expectations, population growth, and expectations regarding federal matching rates—show the Medicaid cost hikes for the decade after 2014 will be as much as 39 percent in Illinois, 36.3 percent increase in New York, 50 percent in Florida, and a 59.5 percent increase in Texas. California’s cost hike is forecast to be a relatively modest 32.1 percent, but only because so many of its citizens are already on Medicaid. Gokhale finds the Golden State can expect a 22.6 percent increase in enrollment over pre-Obamacare expectations by 2030, and Florida’s enrollment increase will be a staggering 57.6 percent.

Obamacare’s Medicaid Mandate Imposes Staggering Costs on States
Cato Institute analyst Michael Cannon notes the cost increases Gokhale found are much greater than would be expected without Obama’s health care regime: “Compared to a world without ObamaCare, state Medicaid spending will rise by 4.5 percent in California, 24.2 percent in Florida, 32.1 percent in Illinois, 22.9 percent in New York, and 24.1 percent in Texas over the first 10 years of full implementation.”

Governors Write to Obama Administration on Medicaid
In a letter from 33 of the nation’s governors to President Obama and Health and Human Services Secretary Kathleen Sebelius, the state chief executives demanded the administration reconsider mandates that prevent states from managing their Medicaid programs. “The effect of the federal requirements is unconscionable; the federal requirements force governors to cut other critical state programs, such as education, in order to fund a ‘one-size-fits-all’ approach to Medicaid,” wrote the governors.

Medicaid Waivers and the Rhode Island Model
Gary Alexander, most recently secretary of health in Rhode Island, writes about the model he applied, through a global waiver, which dramatically improved Medicaid’s costs and outcomes in his state: “Through fiscal year 2011, the Global Waiver has saved approximately $100 million and is one of the reasons why Rhode Island possessed a state budget surplus in state fiscal year 2010. … Rhode Island is showing that more money is not the solution. Comprehensive reform and freedom from federal mandates and burdensome regulations work. Further, all of this work has been accomplished without reducing patient eligibility.”

Rhode Island’s Medicaid Waiver Shows How States Can Save Their Budgets from Obamacare’s Assault
John R. Graham of the Pacific Research Institute discusses the Rhode Island case in more detail: “Remarkably, through the first six quarters of the waiver (January 1, 2009 through June 30, 2010) actual spending was $2.7 billion versus $3.8 billion budgeted—savings of almost one-third. Research has not yet identified exactly how much each reform contributed to the savings, but one expects that many of the changes Rhode Island introduced would be significant contributors. For instance, the state was exempted from Any-Willing-Provider (AWP) rules, which meant that it had more power to incentivize quality from medical providers. It also ‘rebalanced’ Medicaid Long-Term Care (LTC), reducing abuse of this program along the lines recommended in a report recently published by PRI. Critically, it empowered Medicaid beneficiaries to make better choices about their care by giving them more direct control of the dollars spent on their health care.”

Trapped in the Medicaid Ghetto
Writing at the Washington Examiner, Benjamin Domenech of The Heartland Institute points out the Obama program harms the very population Medicaid was designed to serve. “According to a Congressional oversight report released by the Senate’s two serving physicians, Dr. Tom Coburn (R-OK) and Dr. John Barrasso (R-WY), the president’s choice to expand Medicaid services dramatically will have a disproportionate impact on the health of the poor—and as a side effect it will trap a significant percentage of African-Americans in a ghetto of poor medical care. Academic studies have repeatedly confirmed Medicaid patients experience poorer health outcomes and higher infant mortality rates. In July a new report from the University of Virginia found even worse performance: surgical patients on Medicaid actually fare worse than the uninsured. They are 13 percent more likely to die than those who have no insurance and 97 percent more likely to die than patients with private insurance,” Domenech writes.


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