Study: Lure of Federal Medicaid-Expansion Subsidies Should Not Lead Policymakers to Underestimate Medicaid’s Drawbacks or Overlook Other Viable Insurance Options

For Immediate Release
Thursday, June 13, 2013
Contact: Ted O'Neil
Media Relations Manager
989-698-1914

MIDLAND — As state policymakers debate an expansion of Medicaid under the federal Affordable Care Act, the Mackinac Center for Public Policy and the Dallas-based National Center for Policy Analysis today released a study discussing the proposed expansion’s high and uncertain costs, Medicaid’s substandard health outcomes and medical access problems, and the unintended consequences of encouraging low-income residents to seek Medicaid rather than other affordable alternatives.

“Congress has placed large financial incentives in the ACA to encourage states to expand their Medicaid populations,” noted study co-author Devon Herrick, Ph.D., a senior fellow at the NCPA. “But the cost to Michigan taxpayers will rise in coming years — the Heritage Foundation has estimated it at a total of $1.3 billion through 2022.

“There are also costs that are hard to predict,” Herrick added. “Costs to state taxpayers will rise if Congress reduces its 90 percent to 100 percent subsidies below its initial promises, and costs could exceed estimates simply because of the challenges of determining Medicaid eligibility under the ACA.”

Herrick and co-author Linda Gorman, Ph.D., director of the Health Policy Center at the Independence Institute in Golden, Colo., illustrate how Medicaid expansion could be an inefficient way to reduce the uninsured population. Focusing on just one key target group for the Medicaid expansion, they estimate a $475 million cost to Michigan taxpayers over the next decade for enrolling new, nonelderly, previously uninsured individuals with incomes between 100 percent and 138 percent of the federal poverty level. They also estimate, however, that it would be $144 million cheaper for state taxpayers to buy these roughly 124,000 enrollees basic private insurance on the federally subsidized state health exchange.

They further observe that because of federal limits on the out-of-pocket cost of basic exchange insurance, the insurance is already affordable for this income group. Legally, out-of-pocket costs for these individuals cannot exceed 3 percent — in most cases, 2 percent — of income.

Herrick and Gorman also record that in 2010-2011, the most recent period for which statistics are available, some 512,000 Michiganders who would be eligible for the Medicaid expansion had private insurance. The expansion could lead many of them to switch to Medicaid; studies have shown that as many as 60 percent of new enrollees following previous Medicaid expansions had dropped their private insurance. Herrick and Gorman estimate the figure in Michigan will be 29 percent.

“Medicaid’s ‘crowding-out’ of private insurance is significant for several reasons,” Herrick said. “First, it takes costs being borne by the private sector and shifts them to taxpayers. Second, it switches individuals from plans with higher health care provider reimbursements to plans with lower provider reimbursements — one reason Medicaid expansion is unlikely to produce the economic benefits proponents expect. Third, studies have shown that Medicaid patients have worse surgical outcomes and cancer outcomes than the privately insured — and often worse than the uninsured.”

Medicaid patients frequently have a more difficult time gaining access to medical care. A 2008-2009 survey of metro Detroit specialists showed that large percentages — including 50 percent of obstetrics-gynecology specialists — did not accept Medicaid patients.

Herrick and Gorman have done similar studies on Medicaid expansion in other states, including Florida, and this study is based on that earlier work. The Mackinac Center-NCPA study, “An Analysis of the Proposed Medicaid Expansion in Michigan,” is posted at https://www.mackinac.org/archives/2013/s2013-03FINAL.pdf.

The Mackinac Center for Public Policy is a research and educational institute headquartered in Midland, Mich. The largest state-based free-market think tank in the country celebrates its 25th anniversary this year.

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