To Save Medicaid, Hold States Accountable

Taxpayers spent a record $554 billion for Medicaid last year — a 12% rise from 2014 and much higher than forecast. President Obama deserves the credit — and blame — for that rapid increase. And the Centers for Medicare and Medicaid Services predicts that the program will cost $890 billion by 2024.

The president’s 2010 health care law expanded the number of people eligible for Medicaid, the government-run health insurance program for low-income Americans. Nearly 10 million people signed up in 2015, thanks to this expansion. Those enrollees cost a staggering 49% more than federal officials had predicted.

Such spending isn’t sustainable. The only way to protect taxpayers from future cost overruns is to cap federal funding for the program and to block-grant or privatize it. Such changes would force state Medicaid administrators to spend federal contributions wisely.

ObamaCare enables states to expand Medicaid coverage to folks with incomes up to 138% of the federal poverty level — an increase from the previous cutoff. Thirty-one states have expanded Medicaid so far — and costs have exploded.

That’s partly because far more people enrolled than anticipated.

Consider Ohio. Originally, experts expected that 447,000 people would enroll in Medicaid by 2020. But already, more than 650,000 have joined the program — nearly 150% of the initial projection. Consequently, in just two years, the program has cost nearly $3 billion more than expected. By the end of 2017, the state’s Medicaid program will be $8 billion over budget.

Meanwhile, in Arkansas, a new study just revealed that the expansion will require $25 million more than estimated over the next five years. And in Oregon, despite projections that the expansion would cost $217 million between 2017 and 2019, the expansion is now expected to cost $369 million — 70% more than forecast.

Higher-than-expected enrollment isn’t the only reason expenses are surging. Administrators also grossly misjudged how much each new beneficiary would cost.

Initially, federal officials projected that in 2015, the cost of insuring a newly eligible Medicaid enrollee would be 11% less than the average cost of insuring a previously enrolled beneficiary. The new enrollees had higher incomes, so analysts thought they’d be healthier and consume fewer medical services.

But now, officials anticipate new Medicaid enrollees will actually cost 23% more than those previously eligible.

In part, that’s because the federal government agreed to cover 100% of the new enrollees’ costs until 2017, when states will be responsible for 5% of costs. By 2020, states will be responsible for 10%. So at the outset of ObamaCare, states saw this expansion as free money — and set comparatively high reimbursement rates for in-state doctors and hospitals who treated the new patients.

Medicaid must be revamped to hold states accountable for the hundreds of billions in taxpayer dollars they manage.

Currently, the program is so bad at providing quality care that uninsured patients who gain Medicaid coverage don’t see noticeable improvements in their health. Finding a doctor is tremendously difficult, too. Most Medicaid primary care doctors — and more than 4 in 10 specialists — refuse to take new Medicaid patients.

The easiest way to hold states accountable is to transfer (dole out) lump sums to states based on the size of their Medicaid-eligible populations. That would allow local officials to tailor the funds to their states’ unique health care needs and incentivize them to spend wisely. If they use the federal money judiciously, they’ll reduce the need to contribute their own funds. If they squander it, the burden of paying for cost overruns will fall on state officials — not the American taxpayer.

ObamaCare’s expansion of Medicaid doubled down on a failed entitlement. Unless lawmakers force states to have skin in the game, taxpayers will remain on the hook, and low-income Americans will remain without access to quality health care. Thanks, Obama.

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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