States are better off without Medicaid expansion

Congressional Democrats are debating several ways to offer Medicaid coverage to low-income, able-bodied adults in the 12 states that have refused to expand the program under Obamacare.

Spending more federal dollars on the country’s largest entitlement is a bad idea. Medicaid is an unsustainable program that costs a fortune yet provides low-quality care. States shouldn’t have Medicaid expansion foisted upon them.

Obamacare initially required states to expand Medicaid to every adult who makes up to 138% of the poverty line — now amounting to almost $18,000 for an individual. But the Supreme Court, in its 2012 ruling in National Federation of Independent Business v. Sebelius, ruled that states could choose for themselves whether to expand the program.

Many did, attracted by gushers of federal dollars. For normal Medicaid enrollees, such as low-income pregnant women or elderly folks in nursing homes, states cover anywhere from one-fifth to one-half of the program’s costs, and the federal government pays the rest of the tab. But Obamacare offered states a much better deal to expand coverage to all able-bodied adults. The federal government initially offered to cover 100% of the costs associated with the expansion population. That has since decreased to 90%, with states covering the remaining 10%.

Lawmakers recently sweetened the pot even more. The American Rescue Plan, passed in March, upped the federal government’s responsibility to 95% of costs for states that had yet to expand the program.

These efforts dramatically increased the number of people on Medicaid. As of January 2021, nearly 74 million people received coverage through the program, compared to just 55 million in December 2013. But many states are still holding out. Policymakers fear, and not without reason, that the federal government will change this unsustainable arrangement in the future and require states to pony up a far greater share of the tab.

They also recognize that Medicaid provides lousy care. According to a landmark study of 12,000 randomly selected patients in Oregon who applied for Medicaid eligibility via a lottery, those who received coverage reported no “significant improvements in physical health outcomes” compared to those who didn’t.

Medicaid patients also inevitably struggle to find doctors, due to the program’s infamously low reimbursement rates. In 2019, only 71% of providers were accepting new Medicaid patients — compared to the 90% that accepted new privately insured patients.

The program provides so little value that 7.3 million people are eligible for Medicaid but remain uninsured. Nearly 6 million reside in states that have already expanded the program. Medicaid is also plagued by waste and fraud. In 2020, the program made $86 billion of “improper payments.” That accounts for over one-fifth of Medicaid’s total spending.

Medicaid is about turn 56. But that’s no cause for celebration — and half a century’s worth of failures give states plenty of good reasons to resist expansion. Forcing it on them would be an expensive disaster.

Sally C. Pipes (@sallypipes) is president, CEO, and Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). 

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top