The Medicaid Poverty Trap is Growing Worse – Pacific Research Institute

The Medicaid Poverty Trap is Growing Worse

Medicaid turns 50 today. And an expensive “celebration” it will be.

The program now costs taxpayers nearly $500 billion a year. And its costs are projected to increase by almost 7 percent a year through 2023.

How things have changed over the past half-century. The health-care program for the poor barely garnered mention from President Lyndon Johnson when he signed it into law. And perhaps with good reason. It only cost $1 billion back in 1965 — a rounding error in federal accounting.

Despite that 500-fold growth in spending, there’s ample evidence Medicaid provides poor care for its current beneficiaries. If lawmakers want to ensure the program can survive another 50 years, they must fundamentally change it.

Medicaid is expanding at an out-of-control pace. Thanks to ObamaCare, the program has ballooned to nearly 71 million enrollees. That’s more than one in five Americans.

Many of those enrollees are effectively trapped in the program. Medicaid eligibility requirements vary by state. But because the program typically removes people from the rolls once they surpass a certain income level, it discourages people from working to increase their incomes.

Consider the example of a low-income adult worker without children. If enrolled in one of the 31 states (including Washington, DC) that has expanded Medicaid under ObamaCare, he’ll get free health coverage. But that’s only true if his income remains below 133 percent of the federal poverty level — or a little over $15,000.

But if his income rises to 134 percent of the FPL, he’s out of the program.

If his employer doesn’t offer health insurance, he’ll have to pay for it himself through an exchange operated by his state or He’ll be eligible for a subsidy based on his income. But he’ll have to spend 3 to 4 percent of his income on premiums — upwards of an extra $450 a year.

That can be the difference between paying one’s rent or not.

If his employer offers coverage and has more than 100 employees, then he could be even worse off. ObamaCare defines employer-provided insurance as “affordable” if it costs a worker less than 9.5 percent of his income.

If the employee turns that affordable coverage down, he’s not eligible for subsidized coverage in the exchange — nor can he qualify for Medicaid.

Add it all up, and a worker may feel like he’s better off working fewer hours in order to stay below the poverty line and keep his Medicaid coverage.

Even then, he may struggle to find a doctor to treat him. A recent study published in the Journal of the American Medical Association discovered that only about half of doctors would schedule an appointment for a new Medicaid patient.

The evidence shows that Medicaid can be worse than no coverage at all. A University of Pennsylvania study found that colon cancer patients covered by Medicaid had a higher mortality rate than those who were uninsured.

Another study compared Medicaid patients in Oregon with folks who lacked coverage altogether.

It concluded that the former posted health outcomes no better than their uninsured counterparts.

So what’s to be done? Lawmakers must acknowledge that there’s a more effective and less costly way to help the poor get quality care. It starts by giving states greater flexibility to meet the needs of their lowest-income residents.

Currently, the feds pick up as much as 75 percent of a state’s Medicaid tab — no matter how large. That encourages states to spend without restraint.

Instead, the federal government should create incentives for states to spend their Medicaid dollars wisely. Federal block grants can do just that.

Each state would receive a lump sum indexed to its Medicaid population. State lawmakers would then decide how to spend the money.

Block grants would compel state leaders to tailor their spending to specific needs and characteristics of their Medicaid population — and to look for cost-cutting efficiencies.

These simple changes would turn an open-ended entitlement failure with runaway costs into a high-quality health-care option that can last for generations.

Fifty years ago, President Johnson envisioned Medicaid as a way out of poverty, not a way to trap people in it.

Medicaid could still live up to his expectations — if Congress acts now to overhaul it.

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.

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