This commentary originally appreared in Forbes on October 15, 2015.
Most across the political spectrum agree that the government should provide some degree of access to healthcare for the poor and disabled. Disagreements tend to be over to what extent that access should be provided and whether people should be forced to purchase health insurance, as is the ongoing conversation at the heart of Obamacare.
To increase the number of insured people, Obamacare mandated that everyone have some form of health insurance or pay a $95 penalty the first year, increasing steeply thereafter. While this “individual mandate” clearly imposes costs on an individual’s budget and liberty, the U.S. Supreme Court did give states the option to expand Medicaid—the federal-state healthcare program for the poor and disabled.
Obamacare also introduced online federal insurance exchanges that include subsidies to help lower-income people purchase private health insurance and has drastically increased the eligibility criteria for those qualifying for Medicaid.
The Census Bureau recently reported that one year after Obamacare began the number of uninsured fell by 8.8 million to 33 million. This reduction seems rather minimal when individuals are forced to purchase health insurance or pay a penalty along with a decade cost of at least $1 trillion.
Critics blame the less than impressive decline on the 20 states that have not expanded Medicaid. However, these states are actually better equipped to care for those most in need because the states that have expanded Medicaid have seen much higher costs than projected. For example, Ohio’s expansion cost of $4 billion has been $1.5 billion greater than initially projected because per-member costs and enrollment were substantially higher than first thought.
The federal government has held a large carrot in front of states to pressure them to expand Medicaid by paying 100% of the increase in costs for the first three years through 2016. That share will gradually decline to 90% of the costs by 2020 and likely lower thereafter, leaving less of a stick to fall back on later.
This carrot and stick approach gives critics ammunition to claim that states that haven’t expanded are costing them dollars. The Kansas Hospital Association, which is in favor of Medicaid expansion, has a ticker on its website showing that the state’s choice not to expand has cost Kansas almost $750 million since January 1, 2014. This completely overlooks the fact that the state will face a growing share of the long-term costs, putting many Kansans’ on the program at risk.
Federal payments for Medicaid are based on matching state dollars depending on the state’s average per capita income. These payments range from 50% of the cost in Wyoming, to 57.13% in Texas, to 74.17% in Mississippi. The National Association of State Budget Officers recently noted that for the first time Medicaid represented a majority of federal funds to states in 2014.
In general, healthcare spending under Medicaid is rising at an unsustainable pace. Unless other budget priorities are forfeited, taxpayers may soon have to pay higher taxes. This has been the case in Texas.
While Texas didn’t expand Medicaid, the costs continue to skyrocket and during the last budget cycle increased healthcare spending to more than education spending for the first time in Texas history. The states’ share of General Revenue appropriations to Medicaid has increased by 42% to 23% in just over a decade.
Texas is now faced with how to best meet the needs of those on Medicaid and patients on the program are not receiving adequate care. Research shows that Medicaid patients have poor access to care and poor health outcomes. On the other hand, patients with private health insurance top both categories.
Considering these costs, the Texas Public Policy Foundation devised the Texas Medicaid Reform Model that first requires a federal block grant for Medicaid instead of matching funds. This would allow the state to allocate federal and state funds to assist non-disabled risk groups (i.e. kids, pregnant women, and adults eligible for TANF) purchase private health insurance based on a sliding scale determined by the federal poverty level (FPL).
As an enrollee’s income falls into a lower FPL category, the subsidy amount for monthly private health insurance premiums would increase until the subsidy covered 100% of the premium for the zero to 50% FPL range. At higher income levels for each risk group up to their maximum FPL under the current Medicaid program, enrollees would be required to contribute to the cost of their private coverage.
We based the coverage cost on gold or silver plans under the federal exchange. Enrollee contributions would be no more than 5% of their income on healthcare in most cases, which is substantially lower than the 8% maximum under Obamacare.
Using data from the Texas Health and Human Services Commission (HHSC) from 2013 to 2023, our cost estimates from our reform model compared with HHSC’s data show that Texas could save at least $4 billion per year, increasing to around $6 billion by 2023. Cost-savings will likely be much higher as more competition in the private health insurance market bid down prices and patients have more control over their future healthcare needs.
This patient-centered, market-based model should be a path forward for other states to follow so patients will be in the driver’s seat when it comes to controlling their healthcare costs. For the poor and disabled insured through Medicaid but who receive fewer positive outcomes and limited access to care and all taxpayers who pay more for this program than private coverage under our proposal, the time for reform is now.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.