Medicaid Expansion Deceives States and Harms the Truly Needy

Background

Once designed as a safety net for truly needy Americans, Medicaid now covers a new class of individuals.¹ Thanks to ObamaCare, which in 2014 gave states the option to expand Medicaid to a new class of able-bodied, working-age adults, enrollment and spending for the program have skyrocketed.²

States that have expanded Medicaid have experienced the destructive fallout. Expansion states have seen millions of able-bodied adults kicked off private insurance and forced onto welfare, contributing to enrollment overruns that taxpayers must fund.³ Moreover, hospitals in expansion states have seen losses pile up and have experienced unsustainable shortfalls.⁴

Though not all states expanded when the option first became available in 2014, there has since been a steady procession of expansion advocates lining up to justify this massive expansion of welfare. To date, 40 states and Washington, D.C. have taken the bait on Medicaid expansion.⁵ However, new data from three of the later expanders—Louisiana, Maine, and Montana—sheds more light on the lies of Medicaid expansion. Non-expansion states must continue to avoid the trap of Medicaid expansion, and states that have expanded should reverse course and roll back expansion.

More than 5.8 million Americans would be forced off private insurance and onto welfare if the remaining states were to expand Medicaid. This crowd-out alone would exceed $8 billion.

New data from the Centers for Medicare & Medicaid Services shows that the number of individuals enrolled on private insurance through the exchange in non-expansion states has increased this year.⁶ Should the remaining states expand Medicaid, the crowd-out effect—which forces able-bodied adults out of private insurance coverage and onto taxpayer-funded Medicaid—would be devastating. When Medicaid expansion forces otherwise ineligible enrollees onto welfare, they are taking resources from the truly needy. 

Able-bodied adults in expansion states are already taking resources from the truly needy, like individuals with physical and developmental disabilities.⁷ There are nearly 700,000 individuals on waiting lists for services through Medicaid.⁸

If the remaining states expand, 5.8 million more Americans would be forced off private insurance and onto welfare.⁹Hospitals stand to lose more than $8 billion from individuals crowded out of the exchange.^10-15 Individuals moving to Medicaid from other plans, employer-sponsored coverage for example, would send those numbers even higher.

Expansion has harmed hospitals and providers, forcing millions off private insurance and onto welfare, which pays providers less.

With more than a decade of case studies and data, Medicaid expansion has proven to be a net negative for states.^16-18 Hospitals in expansion states were quick to accept additional Medicaid revenue, but the cost to treat patients has far exceeded revenues. This has driven up hospital shortfalls—the difference between the cost of providing services to Medicaid patients and payments from Medicaid. Hospitals in expansion states are in worse financial shape. 

Hospitals’ shortfalls increased by only six percent in non-expansion states, but shortfalls grew by 117 percent in expansion states.¹⁹ Shortfalls grew rapidly in expansion states since able-bodied adults flooded into Medicaid, which does not cover costs for providers. Expansion siphons resources from the truly needy to provide welfare for able-bodied adults. 

Late expanders like Louisiana, Maine, and Montana have seen similar devastating trends.

Montana, Louisiana, and Maine all expanded Medicaid years after it was first offered in 2014, with Montana adopting expansion in January 2016, Louisiana in July 2016, and Maine in January 2019.²⁰

These more recent expansion states have experienced huge increases in Medicaid shortfalls, the difference between hospital payments from Medicaid and the cost of providing services to enrollees. In Montana, shortfalls have nearly doubled. In Louisiana and Maine, shortfalls more than doubled from pre-expansion levels. 

The reality on the ground reflects the dismal financial picture. Hospitals are closing in expansion states.²¹Expansion is particularly damaging to rural hospitals, despite claims of the opposite from the Left.²² In Maine, 64 percent of rural hospitals are experiencing losses on their services.²³ The situation is even worse in Louisiana and Montana, where 65 and 69 percent of hospitals are experiencing losses, respectively.²⁴

Hospitals are much less likely to operate at a surplus if their state expanded Medicaid. This holds true for the three more recent expander states, which have seen profitable operations slashed since expansion. Before expansion, the combined states saw roughly $184 million in profits.²⁵ But in 2021, they were close to $914 million in the red—a nearly $1.1 billion negative change in profit.²⁶

Profit surpluses plummeted because costs increased more than revenue in each state. Costs to care for Medicaid patients exceeded Medicaid payments in each of the three states. The Left is always more concerned with inputs and labels than outputs and results. In this way, advocates may consider expansion a win, despite the mounting empirical evidence that says otherwise—because the political win matters more.

One argument for expansion is that it will reduce the no-cost-required charity care provided by hospitals.²⁷ But any savings from reduced charity care costs is eliminated by the increased Medicaid shortfall. 

THE BOTTOM LINE: To avoid similar destructive fallouts, states must refuse Medicaid expansion.

Promises made by expansion advocates continue to be proven false. Advocates’ predictions on both cost and enrollment have been shattered.²⁸ The Left peddled Medicaid expansion as necessary and affordable, as if millions of Americans could be added to taxpayer-funded coverage without adding to the already disastrous federal deficit. 

In reality, millions of able-bodied adults are forced onto welfare, shifting resources away from the truly needy. Yet the Left’s goal for the program has never been to provide for the truly needy. Instead, the Left’s goal is to get more taxpayer money into the program and more government dependency. These gimmicky, reality-avoidant tactics are on display as states struggle and hospitals close.

The states that have already expanded should seek to roll it back. The 10 holdout states must continue to safeguard their budgets and protect the truly needy by rejecting expansion.

REFERENCES

1.         Jonathan Bain, “Four myths about Medicaid expansion funding—And how to debunk them,” Foundation for Government Accountability (2024), https://thefga.org/research/four-myths-medicaid-expansion-funding-how-to-debunk-them.  

2.         Jonathan Bain, “How millions of Americans will be kicked off private insurance if the remaining states expand Medicaid,” Foundation for Government Accountability (2024), https://thefga.org/research/how-millions-americans-kicked-off-private-insurance.  

3.         Ibid.

4.         Hayden Dublois and Michael Greibrok, “Medicaid expansion dramatically increases hospital shortfalls … And puts their futures at risk,” Foundation for Government Accountability (2024), https://thefga.org/research/medicaid-expansion-dramatically-increases-hospital-shortfalls.

5.         Jonathan Bain, “Four myths about Medicaid expansion funding—And how to debunk them,” Foundation for Government Accountability (2024), https://thefga.org/research/four-myths-medicaid-expansion-funding-how-to-debunk-them.

6.         Exchange enrollment during the 2024 open enrollment period, disaggregated by state and income level, was used to develop the number of potential Medicaid expansion enrollees who could shift out of the Exchange and into Medicaid. See, e.g., Centers for Medicare & Medicaid Services, “2024 open enrollment period state-level public use file,” U.S. Department of Health and Human Services (2024), https://www.cms.gov/files/zip/2024-oep-state-level-public-use-file.zip.

7.         Nicholas Horton, “Waiting for help: The Medicaid waiting list crisis,” Foundation for Government Accountability (2018), https://thefga.org/research/medicaid-waiting-list.  

8.         KFF, “Medicaid HCBS waiver waiting list enrollment, by target population and whether states screen for eligibility,” Kaiser Family Foundation (2023), https://www.kff.org/medicaid/state-indicator/medicaid-hcbs-waiver-waiting-list-enrollment-by-target-population-and-whether-states-screen-for-eligibility/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

9.         Exchange enrollment during the 2024 open enrollment period, disaggregated by state and income level, was used to develop the number of potential Medicaid expansion enrollees who could shift out of the Exchange and into Medicaid. See, e.g., Centers for Medicare & Medicaid Services, “2024 open enrollment period state-level public use file,” U.S. Department of Health and Human Services (2024), https://www.cms.gov/data-research/statistics-trends-reports/marketplace-products/2024-marketplace-open-enrollment-period-public-use-files.  

10.       Authors’ calculations based upon a proprietary microsimulation model that incorporates data provided by the U.S. Department of Health and Human Services on hospital-level financial data disaggregated by payor type, exchange enrollment during the 2024 open enrollment period disaggregated by income level, average Silver-level premiums during the 2024 open enrollment period, hospitals’ share of total health spending disaggregated by state, factors to remove administrative costs, factors to convert to allowed claims costs, and induced utilization factors disaggregated by income level and cost-sharing reduction subsidy level.

11.       Hospital-level financial data disaggregated by payor type was provided by the U.S. Department of Health and Human Services, as reported by hospitals to federal regulators in annual revenue and cost reports, to develop each hospital’s payment-to-cost ratio. 

12.       Exchange enrollment during the 2024 open enrollment period, disaggregated by state and income level, was used to develop the number of potential Medicaid expansion enrollees who could shift out of the Exchange and into Medicaid. See, e.g., Centers for Medicare & Medicaid Services, “2024 open enrollment period state-level public use file,” U.S. Department of Health and Human Services (2024), https://www.cms.gov/data-research/statistics-trends-reports/marketplace-products/2024-marketplace-open-enrollment-period-public-use-files.

13.       Average Silver-level plan premiums, disaggregated by state, were used for the foundation of total health spending by potential Medicaid expansion enrollees who could shift out of the Exchange and into Medicaid. See, e.g., Centers for Medicare & Medicaid Services, “2024 open enrollment period state, metal level, and enrollment status public use file,” U.S. Department of Health and Human Services (2024), https://www.cms.gov/data-research/statistics-trends-reports/marketplace-products/2024-marketplace-open-enrollment-period-public-use-files.

14.       Silver-plan premiums were adjusted by a factor to remove administration costs, convert to allowed claims costs, and adjust for induced utilization with the formula established by the U.S. Department of Health and Human Services for calculating cost-sharing reduction subsidies. See, e.g., Centers for Medicare & Medicaid Services, “Patient Protection and Affordable Care Act; HHS notice of benefit and payment parameters for 2015,” U.S. Department of Health and Human Services (2014), https://www.govinfo.gov/content/pkg/FR-2014-03-11/pdf/2014-05052.pdf.  

15.       Hospitals’ share of allowed claims was calculated by hospitals’ share of total health spending, less home health spending and nursing facility spending, disaggregated by state. See, e.g., Centers for Medicare & Medicaid Services, “Health expenditures by state of residence,” U.S. Department of Health and Human Services (2023), https://www.cms.gov/data-research/statistics-trends-reports/marketplace-products/2024-marketplace-open-enrollment-period-public-use-files.

16.       Hayden Dublois and Michael Greibrok, “Medicaid expansion dramatically increases hospital shortfalls … And puts their futures at risk,” Foundation for Government Accountability (2024), https://thefga.org/research/medicaid-expansion-dramatically-increases-hospital-shortfalls.

17.       Jonathan Bain, “How millions of Americans will be kicked off private insurance if the remaining states expand Medicaid,” Foundation for Government Accountability (2024), https://thefga.org/research/how-millions-americans-kicked-off-private-insurance.

18.       Ibid.

19.       Ibid.

20.       Ibid. 

21.       Hayden Dublois, “Medicaid expansion is closing hospitals,” Foundation for Government Accountability (2023), https://thefga.org/research/medicaid-expansion-is-closing-hospitals.  

22.       Center for Healthcare Quality & Payment Reform, “Rural hospitals at risk of closing,” Center for Healthcare Quality & Payment Reform (2024), https://chqpr.org/downloads/Rural_Hospitals_at_Risk_of_Closing.pdf.  

23.       Ibid.

24.       Ibid.

25.       Author’s calculations based upon data provided by the U.S. Department of Health and Human Services on hospital-level revenue and cost reports.

26.       Author’s calculations based upon data provided by the U.S. Department of Health and Human Services on hospital-level revenue and cost reports.

27.       Gideon Lukens, “Uncompensated care costs fell in states that recently expanded Medicaid,” Center on Budget and Policy Priorities (2022), https://www.cbpp.org/blog/uncompensated-care-costs-fell-in-states-that-recently-expanded-medicaid.  

28.       Hayden Dublois and Jonathan Ingram, “An unsustainable path: How ObamaCare’s Medicaid expansion is causing an enrollment and budget crisis,” Foundation for Government Accountability (2022), https://thefga.org/research/how-obamacares-medicaid-expansion-is-causing-crisis.