Why “Doing Nothing” on Medicaid Expansion Is Utah’s Best Move
- BY FGA
In January, Utah Governor Gary Herbert announced that “doing nothing is not an option” when it comes to expanding Medicaid as permitted by the Patient Protection and Affordable Care Act. The two options under consideration by Utah’s Health Reform Task Force are largely based on Arkansas’s Private Option, which is often held up as a market-oriented alternative to ObamaCare.
Utah legislators should be cautious. Any proposal based on Arkansas’s flawed Private Option is simply Medicaid expansion by another name. This report examines both proposals under consideration by the Health Reform Task Force and finds:
- UTAH’S MEDICAID EXPANSION PLANS HURT THE MOST VULNERABLE
Medicaid expansion would redirect limited funding away from the elderly, children and disabled individuals in order to fund Medicaid coverage for working-age, able-bodied adults.
- UTAH’S MEDICAID EXPANSION PLANS WILL BE EXPENSIVE AND UNPREDICTABLE
Enrollees in an Arkansas-style Medicaid expansion can pick any Silver-level exchange plan at no cost to them. Costs will be wildly unpredictable, as the difference between the cheapest Silver plans and the most expensive Silver plans reaches nearly 57 percent in some regions of the state.
- UTAH’S MEDICAID EXPANSION CROWDS OUT PRIVATE INSURANCE
According to a report commissioned by the Utah Department of Health, roughly 75 percent of potential enrollees in Utah’s Medicaid expansion are expected to drop their private coverage or forgo existing federal exchange subsidies to go on Medicaid.
- UTAH’S MEDICAID EXPANSION DOES NOT PROMOTE PERSONAL RESPONSIBILITY
Unlike those with private insurance, enrollees have virtually no “skin in the game” when it comes to contributing to the cost of their own health care. Under an Arkansas-style Medicaid expansion, taxpayers foot the bill for all premiums and deductibles, and most copays and other cost-sharing.
Medicaid is failing patients and taxpayers, and the options under consideration by Utah’s Health Reform Task Force will only make a bad problem worse. Utah should look for other ways to help underserved communities without further reliance on federal funding.
Under the Patient Protection and Affordable Care Act, known as ObamaCare, Utah policymakers may choose to expand Medicaid eligibility to cover all individuals earning up to 138 percent of the federal poverty level. Although Utah is permitted to expand Medicaid eligibility in this way, the U.S. Supreme Court ruled in June 2012 that the state is under no obligation to do so and no deadline exists to express interest.
Across the country, half of the states have rejected this Medicaid expansion of ObamaCare. Some states, fearing pushback from expanding a government-run system already on the brink of collapse, have proposed “alternative” ways to expand Medicaid. But these “alternatives” are simply Medicaid expansion by another name.
Arkansas is perhaps the highest-profile case of Medicaid expansion through one of these so-called alternatives. Rather than expand Medicaid through the traditional fee-for-service system, Arkansas lawmakers approved an expansion of Medicaid eligibility through what they call the Private Option. Under Arkansas’ Private Option, the expansion population receives Medicaid benefits through plans offered on the ObamaCare health insurance exchange.
In January 2014, Utah Governor Gary Herbert hinted his support to implement ObamaCare’s Medicaid expansion through an Arkansas-style model. While some Utah officials have proposed adopting a similar plan, lawmakers should be wary. Many of the promises made by lawmakers to secure support for this new type of Medicaid expansion have failed to materialize in Arkansas and are unlikely to occur in Utah or elsewhere.
In fact, these empty promises have led Arkansas lawmakers to re-evaluate whether to even fund the Private Option. The bill has been controversial from its inception. When the plan was conceived in 2013, it initially failed to receive enough support for appropriation. The appropriation eventually passed by a narrow margin, with just one vote to spare in the Arkansas Senate. Since then, one Private Option supporter has been replaced by a staunch opponent in a landslide special election in which the biggest campaign theme was the Private Option Medicaid expansion. And one of the deciding votes for the Private Option last year has since announced that she has revered her position and will oppose funding for the program going forward.
With these two developments, Private Option supporters must now recruit those who were previously opposed to the plan to now support it. Given the fact that many of the other lawmakers who supported the plan last year are also unsure how they will vote or are leaning against funding it, the Private Option’s long-term future is certainly in doubt. As one Private Option supporter explained, the Private Option is “at best on life support,” and possibly even dead on arrival.
UTAH’S PROPOSED MEDICAID EXPANSION PLANS
The two options under consideration by Utah’s Health Reform Task Force are largely based upon Arkansas’s Private Option. Under the first option, the state would expand Medicaid eligibility to able-bodied adults earning less than 100 percent of the federal poverty level. Under the second option, the state would expand Medicaid eligibility to all able-bodied adults earning less than 138 percent of the federal poverty level.
Both plans would have most Medicaid benefits delivered to this new expansion group through Qualified Health Plans (QHPs) offered on the federal health insurance exchange. Under these proposals, able-bodied adults would be able to select any Silver-level QHP offered on the exchange. The Medicaid program would pay the full cost of premiums for these plans, as well as the cost-sharing and out-of-pocket costs owed by enrollees. Enrollees in Utah’s proposal would receive all Medicaid benefits, with traditional fee-for-service Medicaid coverage for benefits not covered by the QHPs.
UTAH’S MEDICAID EXPANSION PLANS HURT THE MOST VULNERABLE
Utah’s Medicaid expansion plans put the state’s truly needy citizens at great risk. It is important to remember who would actually qualify for Utah’s Medicaid expansion. The Medicaid expansion does not cover the elderly, individuals with disabilities or even poor children–groups considered among the most vulnerable. Instead, Utah’s plan simply expands Medicaid eligibility to a new class of able-bodied, working-age adults.
Up to 85 percent of these able-bodied adults have no dependent children. Able-bodied childless adults have never been considered among the most vulnerable citizens, which explains why they have historically been ineligible for other types of taxpayer-funded welfare, including cash assistance and long-term food stamps. It is no surprise, then, that the majority of Americans oppose giving non-cash assistance, such as food stamps and Medicaid benefits, to able-bodied, working-age adults, especially those without children.
Although Utah used Medicaid savings to help pay for some primary care services for a limited number of adults without dependent children in the past, ObamaCare’s optional Medicaid expansion would create an entirely new population in Utah eligible for all Medicaid benefits.
ObamaCare’s Medicaid expansion would redirect limited state and federal resources away from the elderly, from children and from disabled individuals in order to fund Medicaid coverage for working-age, able-bodied childless adults. Worse yet, because the exchange’s QHPs reimburse doctors and hospitals at higher rates than Utah’s traditional Medicaid program, providers will have large financial incentives to treat the new working-age adults comprising the Medicaid expansion, rather than the most vulnerable already enrolled in Medicaid.
This will ultimately create a two-tiered system of care, where able-bodied adults are prioritized over the truly needy. This is particularly worrisome, given the fact that all but one county in Utah has a shortage of primary care providers. Simply adding 100,000 to 150,000 or more individuals to the Medicaid program will inevitably make access problems even worse for those on traditional Medicaid, as it greatly increases demand while doing nothing to increase the supply of providers. But Utah’s proposals go much further by creating perverse incentives for providers to push the truly needy to the end of the line.
UTAH’S MEDICAID EXPANSION PLANS ARE EXPENSIVE AND UNPREDICTABLE
Utah’s Medicaid expansion is also likely to prove more expensive and create budget instability in the coming years. Unlike Medicaid managed care reforms that Utah has begun, the state does not set multi-year contracts with capitated rates through a competitive bidding process. Instead, an Arkansas-style Medicaid expansion will require Utah to pay enrollees’ premiums and additional subsidies to insurers to cover deductibles, coinsurance, copayments and other out-of-pocket costs. The state has no negotiating leverage with the plans and no predictability of future premium increases.
Delivering Medicaid benefits through QHPs is also certain to prove more expensive than even a traditional ObamaCare Medicaid expansion. This is largely because QHPs pay higher reimbursement rates than Medicaid, but cannot impose the type of cost-sharing that private insurers have historically used to encourage more appropriate utilization. Utah must also provide all regular Medicaid benefits to the expansion group, so the state will not be able to control or reduce costs by providing more limited benefit packages.
The Congressional Budget Office has previously estimated that QHPs will cost roughly 50 percent more than traditional Medicaid. Even in Arkansas, which has led the charge to expand Medicaid in this way, policymakers admit that the plan is a more expensive way to expand Medicaid and were only able to achieve budget neutrality through faulty assumptions and budget gimmicks.
This cost difference is likely to be even higher than expected in Utah, given that cost sharing is lower than allowed on the exchange and that enrollees in the Medicaid expansion can pick the most expensive plans available at no additional cost. The difference in costs between the cheapest Silver plans and most expensive Silver plans range upwards of 57 percent in some regions. Enrollees in the Medicaid expansion are likely to pick the most expensive plans, which typically have broader provider networks and drug formularies, because they have no financial incentive to do otherwise. For example, the cheapest plan available to someone in Salt Lake City only has three hospitals in its network within a 20 mile radius, while the most expensive plan has eight hospitals in its network within that same distance.
Expanding Medicaid to able-bodied childless adults has created budget uncertainty in other states, even when using tools like capitation to create more predictability. Given the design of Utah’s proposed Medicaid expansion, lawmakers should expect the proposal to create even more unpredictability. At a time when policymakers are concerned with rebuilding Utah’s cash reserves and paying down existing state debt, creating a new entitlement for able-bodied adults is a significant risk when there is no reliable way to project how much the expansion will actually cost.
UTAH’S MEDICAID EXPANSION PLANS CROWD OUT PRIVATE INSURANCE
While preliminary estimates predict that between 100,000 and 150,000 newly-eligible Utahns would enroll following a Medicaid expansion, most of those individuals would not come from the pool of uninsured but rather would be crowded out of the private insurance market. In fact, roughly three-quarters of the people expected to enroll in Utah’s Medicaid expansion are expected to drop their private coverage or forgo existing federal exchange subsidies to go on Medicaid.
According to a report commissioned by the Utah Department of Health, up to 26,000 of those in poverty expected to enroll will come from the ranks of the privately insured. Another 75,000 would be eligible for federal subsidies to purchase private insurance through the health insurance exchange, but lose those subsidies if Utah expands Medicaid.
The crowd-out effect could actually be even worse than expected under Utah’s proposal. Estimates produced for the Department of Health indicate that hundreds of thousands of Utahns currently with private insurance would be eligible for Medicaid under the expansion. By making these individuals eligible to receive similar private plans with much lower out-of-pocket costs and premiums, Utah should expect a much larger number of individuals to shift from their current plans into the Medicaid expansion.
States that have previously expanded Medicaid eligibility have seen a huge number of individuals shift from private insurance to Medicaid. It is no surprise that economists predict that the Medicaid expansion will merely “shift workers and their families from private to public insurance” rather than reduce the number of individuals without insurance.
Ultimately, Utah policymakers are being asked to gamble that the federal government will keep its funding promise to provide Medicaid for a group of able-bodied adults who will come not from the ranks of the uninsured, but from the privately insured.
UTAH’S MEDICAID EXPANSION PLANS DO NOT PROMOTE PERSONAL RESPONSIBILITY
Many supporters of this Arkansas-style approach to Medicaid expansion hope it will promote personal responsibility in a way that traditional Medicaid does not. Those hopes are misplaced.
Supporters of this Medicaid expansion model often want new enrollees to pay premiums, deductibles and copays for their new Medicaid QHPs—just as they would in the private market. But the federal government has made clear that Medicaid’s nominal cost-sharing rules must apply to these kinds of Medicaid expansions. This means that cost-sharing cannot exceed 5 percent of income, deductibles must be waived and copayments must be of nominal amounts. In fact, the cost-sharing allowed in the Medicaid expansion plans approved in both Arkansas and Iowa have stricter cost-sharing limitations than even traditional Medicaid.
Additionally, the group of able-bodied adults above the poverty line in Utah’s full expansion proposal will have less skin in the game than if the state does not expand Medicaid. If Utah does not expand Medicaid, a 34-year-old non- smoking individual right above the poverty line would pay just $230 per year in premiums for the second-cheapest Silver plan. If that individual picked some of the more expensive plans covered by the Medicaid expansion, he or she would be responsible for up to $1,338 per year in premiums alone. But under the proposed Private Option Medicaid expansion, those more expensive premiums would be covered free of charge to the individual, removing the primary financial stake they would have in their health plan.
Similarly, if that same individual earned just under 138 percent of the federal poverty level and without Medicaid expansion, he or she would pay $522 per year in premiums for the second-cheapest Silver plan. But if that individual picked some of the more expensive plans, he or she would be responsible for up to $1,631 per year in premiums. With Medicaid expansion, on the other hand, those premiums are paid by taxpayer.
In addition to premiums, these individuals would be responsible for copayments, deductibles, coinsurance and other out-of-pocket costs capped at $2,117 per year. So rather than promote personal responsibility, as some expansion supporters may hope, Utah’s Medicaid expansion proposal is likely to reduce personal investment in their health care decisions.
Medicaid is already failing patients and taxpayers across the country. But Utah’s proposed Medicaid expansion plan will only make these problems worse. The plan’s design will ultimately create a two-tiered system of care that prioritizes able-bodied adults over the truly needy. Medicaid expansion will be expensive and unpredictable, destroying the state’s ability to rebuild its cash reserves and pay down its existing debt. But despite massive new spending, the primary result will be individuals crowded out of the private insurance market and into Medicaid, reducing personal responsibility and cost-conscious behaviors.
Instead of creating a new entitlement for able-bodied adults, lawmakers should refocus their efforts on improving the existing Medicaid program, building on Utah’s long and proud tradition of volunteerism by encouraging authentic volunteer charity care in underserved Utah communities or finding another solution that does not require further dependence on federal funding or subject Utah even more to federal rules and regulations. Medicaid was intended to be an affordable health care safety net for the truly vulnerable. Utah policymakers should focus on meeting this critical goal instead of undermining it with a short-sighted Medicaid expansion scheme.