The Benefits Of Medicaid Expansion: A Reply To Heritage’s Misleading Use Of Our Work

EDITOR'S NOTE: As implementation of health reform draws near, the debate over Medicaid's role in the process continues. Stan Dorn and John Holahan of The Urban Institute are leading voices on Medicaid from a liberal perspective. Center for Health Journalism Digital has also reached out to Stuart Butler and his colleagues at The Heritage Foundation, an important conservative voice, to provide us with a response to the blog below.

Originally published on the Health Affairs Blog

By Stan Dorn and John Holahan

In a publication released in numerous states as well as a JAMA Forum article and a recent list of ten supposed “myths” about Medicaid expansion, the Heritage Foundation repeatedly cites our paper for the proposition that “40 of 50 states are projected to see increases in costs due to the Medicaid expansion,” and that expansion would force such states “to dig deep into their already overstretched budgets.” Even in the 10 remaining states, according to Heritage, the budget gains we projected to result from expansion were speculative and uncertain, since they supposedly relied on states cutting payments for hospital uncompensated care.

These claims distort our work. We identified 10 states in which Medicaid expansion would yield net savings based on just one factor — namely, unusually generous prior Medicaid coverage, for which states could claim enhanced federal matching funds. The modest additional gains resulting from uncompensated care savings did not tip any state from the red into the black.

Medicaid Expansion Offers Budget Savings, Revenue, and Economic Gains to States

More importantly, Heritage ignored our explanation that, because we were limited to “data available for all 50 states and the District of Columbia, we were unable to estimate several potential sources of state fiscal gain;” and that if additional, state-specific factors were considered, “many more states could realize net fiscal gains.” Nor did Heritage acknowledge that all states must pay for national health reform but only those that expand Medicaid will receive large, offsetting allotments of federal Medicaid dollars, with resulting economic activity, jobs, and state revenue.

For example, a report one of us prepared along with colleagues in Ohio found that, while a Medicaid expansion would increase that state’s Medicaid costs by about $2.5 billion from 2014 through 2022, it would also save Ohio $1.5 billion by reducing state spending on current programs in favor of the largely federally financed expansion. Such programs cover so-called “medically needy” adults, women with breast and cervical cancer, and adults who are waiting for disability determinations. At the same time, expansion would increase state revenue by as much as $2.8 billion, in part because of the economic activity galvanized by more than $31 billion in new federal Medicaid funds, but also because of prescription drug rebates and taxes on Medicaid managed care premiums. The overall result: at least $1.8 billion in net state budget gains.

We also found that Medicaid expansion would create more than 27,000 Ohio jobs, reduce the number of uninsured by more than 450,000, cut health costs for employers and residents by $285 million and $1.1 billion, respectively, and lessen budget shortfalls facing Ohio’s counties. Analysts in states like New Mexico, Oregon, Michigan, and Virginia similarly concluded that Medicaid expansion would yield state savings on high-risk pools, public employee coverage,  and mental health care and substance abuse services for the poor uninsured. In fact, every comprehensive fiscal analysis of which we are aware has found that Medicaid expansion yields net state budget gains.

Governors have structured their proposals to guard against the risk that the federal government might, for the first time in history, cut its share of Medicaid funding. For example, the plan from Ohio’s Gov. John Kasich would automatically end Medicaid expansion if federal funding drops even one percentage point below promised levels, and HHS has repeatedly made clear that states have complete freedom to rescind the expansion. Rather than “lock workers in poverty” as nonsensically asserted by Heritage, Medicaid expansion means that, in the median state, a working mother with two children will no longer lose health coverage if her earnings rise above 61 percent of the poverty level, which is $229 a week. No wonder many governors in both parties now support Medicaid expansion.

Medicaid’s Effectiveness

Heritage rhetoric pictures Medicaid as a “broken program” with “creaking foundations,” but solid research documents Medicaid’s effectiveness. Recent studies published in Oxford’s Quarterly Journal of Economics and the New England Journal of Medicine found that Medicaid expansion improves access to care after one year; significantly reduces the incidence of depression, improves overall health status and the detection of diabetes, and virtually eliminates catastrophic health care burdens after two years; and saves numerous lives within five years. Studies that controlled for health and socio-economic status discovered that Medicaid and private coverage provide similar access to care—with Medicaid costing substantially less. Medicaid costs per person are projected to actually decline in 2012 then rise more slowly than the economy as a whole throughout the coming decade.

To be sure, Medicaid is far from a perfect program. In particular, spending constraints cause states to limit payments to Medicaid providers, reducing their willingness to serve Medicaid patients. That said, Medicaid expansion would improve access to care for millions of uninsured—including poor veterans and their families; create thousands of new jobs; provide significant revenue to hospitals facing significant Medicare cuts; lower health care costs for employers and consumers; provide fiscal relief to localities; and in substantially more than 10 states—perhaps even most states—yield net budget gains that could be reinvested in education, transportation, tax cuts or other priorities.  Why would state leaders focused on achieving practical results for their constituents reject a policy that produces such benefits?

Stan Dorn, John Holahan,The Benefits Of Medicaid Expansion: A Reply To Heritage’s Misleading Use Of Our Work, Health Affairs Blog, May 3, 2013,  Copyright ©2010 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.