Research & Commentary: The Personal Health Care Safety Net Medicaid Fix

Published April 26, 2017

Thirty-two states, including the District of Columbia, have chosen to expand their Medicaid programs under the Affordable Care Act (ACA). Medicaid is already placing severe financial strain on state budgets, and the program has a proven track record of failing to provide cost-effective and efficient care for those in need. Congress is now considering several plans to replace the Affordable Care Act, with no clear choice yet available. A new option recently proposed by Justin Haskins, Michael Hamilton, and Sam Karnick of The Heartland Institute takes an alternate approach to providing health care for Medicaid recipients, putting health care dollars in the hands of patients and allowing them to choose how to best use them.

Medicaid has long used taxpayer dollars inefficiently. A report from the Department of Health and Human Services (HHS) found the average cost of the ACA’s Medicaid expansion enrollees was nearly 50 percent higher in fiscal year 2015 than the levels HHS had projected the previous year. In 2015, Medicaid expansion enrollees cost an average of $6,366; HHS had predicted it would be $4,281. HHS also reported Medicaid spending reached $554.3 billion in fiscal year 2015, which is 5 percent higher than its projections. This is not surprising; the increased federal funding incentivized states to increase enrollment and boost payment rates.

The new proposal, known as the “Personal Health Care Safety Net Medicaid Fix,” would give these tax dollars back to taxpayers, providing each Medicaid adult and child with a transferable deposit of $7,000 per year in a health savings account (HSA). $511 billion of the tax dollars spent annually would fund the accounts. Medicaid recipients could use the HSA deposit to purchase health insurance along with associated health care costs like prescriptions, copays, and deductibles. These funds could also be used to help a sick spouse, sibling, parent, or child.

The HSA’s remaining balance would roll over to the following year, encouraging savings. A family of four would have $28,000 with which to buy insurance and cover a family deductible. The authors wrote the accounts would provide a safety net for families. “Enrollees who are relatively young and healthy soon would build personal safety nets worth tens of thousands of dollars,” the Heartland researchers noted. “This would not only be good for them, it would stabilize Medicaid, which has become an enormous and unpredictable burden on state budgets.”

While the new accounts will be more than sufficient for young and healthy patients, older and sicker patients will likely need additional assistance. The Medicaid Fix allocates the $34 billion saved by the plan to be used to provide this assistance to these recipients.

Substantial Medicaid reform is needed sooner rather than later; the current reforms under the Affordable Care Act have failed at nearly every level, increasing costs for patients, providers, and taxpayers while doing very little to improve health care outcomes. Peter Ferrara, a senior fellow at The Heartland Institute, warns total future costs to state governments are estimated to exceed the funds provided by the national government, with the shortfall reaching as much as 66 percent of state expenditures. States will find the situation unsustainable.

The Personal Health Care Safety Net Medicaid Fix would not kick anyone off Medicaid; it would evenly distribute Medicaid funds to all patients at or near current program levels. The Fix allows families to share Medicaid funds, allowing them to better take care of each other.

States currently waiting for the federal government to pass health care reform should wait no longer. Instead of being reactive to what’s happening in Washington, DC, state lawmakers should apply for waivers from the U.S. Department of Health and Human Services to allow for more control over their Medicaid programs, shifting the paradigm away from health insurance and toward health care.

Placing health care dollars in the hands of Medicaid patients would encourage active shopping for better-priced care and insurance, encouraging competition and lowering costs across the board.  

The following documents examine Medicaid reform in greater detail.

The Personal Health Care Safety Net Medicaid Fix
This article by Justin Haskins, Michael Hamilton, and S.T. Karnick of The Heartland Institute outlines a proposed reform plan for Medicaid, the Personal Health Care Safety Net Medicaid Fix. The authors say their Medicaid Fix would expand patient choice and give each Medicaid enrollee real money, not false promises, in the form of a personal safety net that would empower even the poorest of families to take care of itself and give more than 70 million Americans access to the private health insurance market.

WSJ Runs Heartland Experts’ Plan to Give Medicaid Funds Straight to Patients   
In this edition of the Consumer Power Report, Michael Hamilton discusses the Personal Health Care Safety Net Medicaid Fix and how it could provide for health care far better than the current Medicaid system.

The Report Every State Legislator Should Read
In this article published by National Review, Chris Jacobs writes about a new report issued by the Congressional Budget Office that analyzes profit margins for hospitals over the coming decade. It concludes Medicaid expansion will not make a material difference in hospitals’ overall viability.

Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems
In this Mercatus Center paper, 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.

Projecting Hospitals’ Profit Margins Under Several Illustrative Scenarios
In this Congressional Budget Office paper, Tamara Hayford, Lyle Nelson, and Alexia Diorio calculate and project hospitals’ profit margins and the share of hospitals that might lose money in 2025 under several illustrative scenarios. “The hospitals we examined would have to increase the growth of total revenues or reduce the growth of total costs by an additional 0.2 percent to 0.5 percent per year to achieve the same level of average profitability in 2025 as they obtained in 2011; whether that would be easy or difficult is unclear,” the CBO report concluded.

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.

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.

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.

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.

Government Report Finds Obamacare Medicaid Enrollees Much More Expensive than Expected – 75a85aba2dd0
Brian Blase of the Mercatus Center at George Mason University 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.


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. 

If you have any questions about this issue or The Heartland Institute’s website, contact John Nothdurft, The Heartland Institute’s government relations director, at [email protected] or 312/377-4000.