State Flexibility Is Key to Improving Medicaid

April 26, 2019

“Medicaid is a humanitarian catastrophe.” This dramatic pronouncement by Foundation for Research on Equal Opportunity President Avik Roy in 2011 has proven a cause célèbre for the program’s defenders, who credit the federal government’s health insurance program for low income Americans with saving millions of lives. But, it’s been 5 years since the program was expanded to Americans earning income at 138 percent of the poverty line in 36 states and evidence on Medicaid’s effectiveness has not been kind to the program’s supporters. The program has failed to improve the lives of its enrollees and threatens to drown taxpayers in trillions of dollars of debt. Instead of doubling down on a failed program, Congress should encourage states already pursuing promising reforms.

Depending on whom you talk to, Medicaid is either a boon to millions of enrolled low income beneficiaries, or a dramatic bust that is failing the most vulnerable members of society. To find out the truth, researchers across the country have marshalled mountains of data to test the impact of Medicaid expansions on a host of health outcomes. In 2017, researchers supported by the Robert Wood Johnson Foundation (which supports Medicaid expansion) studied “how a rapid expansion of public health insurance for pregnant women and infants under the Medicaid program affected the adult outcomes of individuals born between 1979 and 1993 who gained access to coverage in utero and during the first year of life.”

The team found that the expansion cost about $500 million in additional taxpayer dollars per year, but has only saved about $130 million per year in avoided hospitalization expenses for the now-adults who were covered as infants. In other words, the government could’ve spent half the money, put the funds in a health savings account for each beneficiary, and taxpayers and enrollees alike would’ve been far better off.

And these sorts of findings aren’t limited to just one study. A June 2018 study in Health Affairs summed up the results of 77 studies on Medicaid’s effectiveness and found that around three-quarters of all studies find either no effect or negative effect on outcomes deemed “consistent with the goals of the Affordable Care Act.” Study questions that focus on whether or not more people have insurance on paper as the result of Medicaid expansion (duh) tend to obscure findings on the actual health of enrollees. Alarmingly, 60 percent of analyses found that health status and quality of care did not improve due to increased Medicaid funding.

It’s truly mind-boggling how the federal government could spend so much money reimbursing doctors for seeing low income patients with such dismal results. Fortunately, the federal government has allowed states such as Rhode Island and Florida to experiment with Medicaid funds and get a better bang for the buck in improving patient outcomes. In 2009, Rhode island made a deal with the federal government: it agreed to limit itself to a block-grant of (capped) federal funding for Medicaid, but in exchange, the federal government removed restrictions on how states could experiment with funding.

Rhode Island took steps to limit full state aid to those that truly need it, requiring able-bodied recipients above the poverty line to contribute toward their own healthcare. State officials channeled the savings into innovative programs such as shared senior living and niche specialized care to small patient cohorts that would not have been possible with federal restrictions. According to an independent audit conducted just two years after implementation, the reforms were “highly effective in controlling costs and improving patients’ access to appropriate physician services.”

Florida obtained a waiver in 2013, allowing the state’s Medicaid program to pivot toward managed care and innovative, integrated arrangements to better the health of its residents. The Sunshine State has been particularly aggressive in promoting telemedicine and integrated health and housing plans. Patients can choose from a variety of plans that suit their needs and risk profiles, a refreshing change for a federal program which normally offers no such choice.

More states can push even more innovative solutions, federal government permitting. While the Trump administration has been more flexible in approving Medicaid waivers than the Obama administration, states such as Alabama, South Dakota, and Virginia are still waiting for the green light. With greater experimentation, states can turn around Medicaid’s lackluster outcomes and help millions of beneficiaries lead better lives. Medicaid may be a humanitarian and taxpayer catastrophe, but it certainly doesn’t have to be.

Ross Marchand is a Catalyst Policy Fellow and the director of policy for the Taxpayers Protection Alliance. He focuses on a range of issues, ranging from health-care reform to internet regulation to Postal Service-related issues. Ross is an alumnus of the Mercatus Center MA Fellowship at George Mason University, where he received his MA in economics in 2016. He has interned for the Texas Public Policy Foundation and the American Legislative Exchange Council, analyzing and blogging on a variety of public policy issues.
Catalyst articles by Ross Marchand