Research & Commentary: Medicaid Expansion Increases Cost-Shifting Burden

Published September 17, 2018

Arizona’s Medicaid expansion failed to achieve one of its primary goals: reducing cost-shifting from the uninsured to those with insurance through increased premiums and service costs, according to a comprehensive study released by the Goldwater Institute.

When Arizona lawmakers considered Medicaid expansion in 2013, many supporters claimed expansion would reduce what Goldwater calls the “hidden healthcare tax,” which occurs when employers, employees, and private insurance customers pay higher premiums to cover hospitals’ uncompensated care costs for uninsured patients.

Prior to Medicaid expansion in the Grand Canyon State, cost-shifting to private payers to offset underpayments and losses from Medicaid and the uninsured amounted to 14 percent more than the hospitals’ costs, or around $1.4 billion in 2007. The Goldwater study concluded that cost-shifting not only increased under Medicaid expansion, it expanded substantially.

In 2016, three years into expansion, the costs paid by private payers increased to around 27 percent above hospital costs or approximately $2.1 billion. Furthermore, Goldwater found that hospital costs for health care services increased more for insured patients than for the uninsured and that total charges increased across the board.

Like many states, Arizona experienced a surge in the use of emergency departments. In fact, Medicaid charges in Arizona’s emergency departments increased by 300 percent since the state decided to expand Medicaid.

Contrary to expansion supporters’ depiction of the new federal funds as “free money,” Medicaid expansion is expensive. It creates costs for states that the federal government does not cover, leaving state taxpayers on the hook for these liabilities. Even worse, the federal matching funds all states counted on to help fund the expansion costs are unlikely to remain permanent. Unfortunately, there is no long-term funding source for Medicaid, and the national government is already drowning in more than $21 trillion in debt. The federal matching rate declines over time, so states will eventually have to find other ways to cover the costs of more Medicaid recipients.

Medicaid expansion is bad policy. It increases health care costs without providing improvements to quality of care. Arizona should pursue meaningful reforms that would help increase access to high-quality, more-affordable health care without increasing the state budget or the national debt by using Section 1115 waivers. Under provisions written into the original Medicaid law, state policymakers are able to apply for Section 1115 waivers from the U.S. Department of Health and Human Services (HHS), which, if approved, allow states more flexibility to innovate and make significant changes to their Medicaid programs.

Section 1115 waiver reform proposals can include: work requirements, payment enforcement mechanisms to encourage enrollees to pay cost-sharing, incentives for enrollees to engage in healthy behaviors, time limits on coverage, monthly income verification and eligibility renewals, payment and eligibility changes, and the incorporation of health care innovations like direct primary care.

Arizona should also repeal state regulations that are obsolete or counterproductive, thereby lowering costs that end up getting passed on to hard-working residents of the Grand Canyon State.

The following documents examine Medicaid reform and expansion in greater detail.

The Arizona Medicaid Expansion Experience: Beware the Peddlers of Cost-Shifting Claims
This study, written by Naomi Lopez Bauman, Angela Erickson, and Christina Sandefur examines the effects of Medicaid expansion on health care costs and whether it has cut down on the high cost-sharing borne by the insured. The study concludes expansion increased the burden on the privately insured. “The Arizona experience is a cautionary tale for lawmakers: A program should be evaluated based on outcomes, not intentions. Arizona’s expansion not only failed to deliver on its promise to alleviate supposed cost burdens on private payers, it exacerbated them.”

Don’t Wait for Congress to Fix Health Care
In this Policy Brief, Heartland Senior Policy Analyst Matthew Glans documents the failure of Medicaid to deliver quality care to the nation’s poor and disabled, even as it drives health care spending to unsustainable heights. Glans argues states can follow the successful examples of Florida and Rhode Island to reform their Medicaid programs or submit even more ambitious requests for waivers to the Department of Health and Human Services – a suggestion the Trump administration has encouraged.

The Growing Medicaid Expansion Bubble
In this edition of the Consumer Power Report, Executive Editor Justin Haskins examines Medicaid expansion and all the problems it has created for states, physicians and patients. “Despite the lack of attention the issue is getting, the growing Medicaid population could lead to state government meltdowns around the country and a national health care crisis for which most Americans are completely unprepared,” wrote Haskins.

Here’s Why States Must Resist the Temptation to Expand Medicaid – 420cec6d5b80
Sally Pipes, president of the Pacific Research Institute, argues in this Forbes piece states should resist any push to expand Medicaid. Pipes recommends replacing Medicaid entitlements with block grants. “If governors and state legislatures really want to help low-income folks while keeping their budgets under control, they should insist Washington[, DC] replace the failed, open-ended Medicaid entitlement with block grants pegged to inflation,” wrote Pipes.

Government Report Finds Obamacare Medicaid Enrollees Much More Expensive than Expected – 75a85aba2dd0
Brian Blase wrote in Forbes the costs for newly eligible adults were not decreasing as expansion supporters predicted they would. Blase says in a new report, HHS says newly eligible adult Medicaid enrollees cost about 23 percent more than the Medicaid enrollees who were eligible prior to expansion.

The Oregon Experiment—Effects of Medicaid on Clinical Outcomes–effects-of-medicaid-on-clinical-outcomes?source=policybot
This article from The New England Journal of Medicine examines Medicaid outcomes in Oregon. Oregon gave researchers the opportunity to study the effects of being enrolled in Medicaid (compared to being uninsured) based on data from a randomized controlled trial, the “gold standard” of scientific research. The results showed no improvement in health for enrollees, but it did reveal better financial protections for patients and increased medical spending.

Research & Commentary: States Pursue Work Requirements for Medicaid–commentary-states-pursue-work-requirements-for-medicaid?source=policybot
Senior Policy Analyst Matthew Glans examines efforts by several states to add work requirements to their Medicaid programs. “Implementing Medicaid work requirements would be a good first step for Medicaid-expansion and non-expansion states toward helping to limit the rising costs of Medicaid,” Glans wrote.

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, DC greater control over spending to better fit coverage expansion to states’ needs, resources, and budgets.

Effect of Medicaid Coverage on ED Use – Further Evidence from Oregon’s Experiment
Amy Finkelstein, Sarah Taubman, Heidi Allen, Bill Wright, and Katherine Baicker examine the effect Medicaid coverage has on emergency room use. They found people enrolled in Medicaid significantly increase their emergency room visits for around two years after they first sign up. “For policymakers deliberating about Medicaid expansions, our results, which draw on the strength of a randomized, controlled design, suggest that newly insured people will most likely use more health care across settings – including the [emergency department] and the hospital – for at least 2 years and that expanded coverage is unlikely to drive substantial substitution of office visits for ED use.”

Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems
Brian Blase examines the effect of the Affordable Care Act on Medicaid. Blase’s findings reveal Medicaid expansion has worsened many of the structural problems in the program. “The unanticipated expense casts doubt on the value of the ACA Medicaid expansion. The enhanced federal match incentivizes states to boost ACA expansion enrollment and to categorize Medicaid enrollees as ACA expansion enrollees, and also encourages states to set high fees for ser­vices commonly used by expansion enrollees and high payment rates for insurers participating in states’ Medicaid managed care programs,” wrote Blase.


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, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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