February 10, 2015

Obamacare Expanded Medicaid, Not Private Insurance


  • In 2014, 89 percent of Obamacare’s net effect on coverage resulted from an expansion of the failing Medicaid program.

  • Obamacare’s perverse funding could lead states to provide generous services to healthy, working-age adults while skimping on care for the truly needy.


In 2014, nearly all of Obamacare’s net effect on insurance coverage resulted from increases in the failing Medicaid program. This happened even though only about half of states chose to expand their Medicaid programs under the law.

obamacare net coverage

One of Obamacare’s most perverse features is that the federal government now reimburses states substantially more for providing Medicaid services to able-bodied, working-age adults than for the disabled and for low-income children, pregnant women, and seniors. These were the people traditionally covered by Medicaid. This funding mechanism could lead states to provide generous services to some people, while skimping on care for the truly needy.

Medicaid suffered from serious problems prior to Obamacare’s enactment. These included: escalating spending increases; low provider participation; poor quality of care; large crowd-out of private sector coverage; and perverse incentives that discouraged working and saving. The program needed major reform, not a blanket expansion.

Obamacare Is Mostly a Flawed Medicaid Expansion

According to an analysis released by the Heritage Foundation late last month, Obamacare’s Medicaid expansion is responsible for almost all of the law’s net increase in people with coverage. Through the first nine months of 2014, the increase in individual market enrollment was 5.8 million people, which was largely offset by the 4.9 million people who lost workplace coverage. Over the same time, enrollment in Medicaid and the Children’s Health Insurance Program increased by 7.5 million people. The total increase in Medicaid accounted for 89 percent of the net increase in people with insurance coverage between January 1 and September 30, 2014.

Most of the individual market increase resulted from Obamacare’s exchange subsidies. Later this year, the Supreme Court will decide the legality of these subsidies in up to 37 states that refused to establish exchanges. If the court finds the subsidies have been unlawfully issued, individual market enrollment will likely plummet as people face the true cost of Obamacare’s mandate-laden coverage.

During the third quarter of 2014, both individual market and workplace coverage declined – a combined drop of nearly 1.6 million people. As the number of people with private insurance went down, Medicaid continued to capture more people, rising by 1.4 million that quarter.

In July 2012, CBO projected that net Medicaid enrollment would increase by six million people between 2013 and 2014. At that time, CBO also projected that individual market enrollment would increase by eight million people and workplace coverage would decline by two million people. On net, CBO projected that 12 million more people would have coverage in 2014 compared to 2013, with only half of the coverage gains through Medicaid.

On every coverage dimension, Obamacare performed worse in 2014 than CBO projected. One-and-a-half million more people are on Medicaid, and five million fewer people are enrolled in private coverage. Three million more people lost workplace coverage than CBO projected back in July 2012. Two million fewer people are enrolled in the individual market than CBO predicted.

firstyearWEB

Given the administration’s diminished expectation of only nine to 10 million exchange enrollees in 2015, and CBO’s projection that the drop in workplace coverage will accelerate, Obamacare is likely to remain mostly an expansion of Medicaid for the foreseeable future.

Medicaid’s Long-Standing Problems

Between 1990 and 2013, Medicaid spending increased from $72 billion to $456 billion. Prior to Obamacare, federal taxpayers reimbursed states an average of 57 percent of the cost of providing Medicaid to the disabled and low-income children, pregnant women, and seniors. The federal government’s share amounted to about $262 billion in 2013.

The open-ended federal reimbursement of Medicaid spending led states to unsustainably grow their programs and pass a majority of the bill to federal taxpayers. Even with a large Washington subsidy for their programs, the funding mechanism can threaten other state priorities, such as education and infrastructure. Moreover, Washington’s lax oversight has proven no match for the creative techniques states employ to grab more taxpayer dollars.

There is substantial evidence that people are not receiving a proportional benefit for all this spending. Americans enrolled in Medicaid have less access to health care. When they do receive care, the quality is often inferior.

One comprehensive study found that Medicaid patients were significantly more likely to die after surgery than the uninsured and the privately insured. Medicaid patients were more likely to suffer complications and stay in the hospital longer. Another study found that a child with asthma was five times more likely to see a specialist if the family had private coverage than if they had Medicaid.

In December 2014, the inspector general for the Department of Health and Human Services released a report showing that half of Medicaid managed-care providers, particularly primary care providers, did not offer appointments to Medicaid enrollees. Of those who offered appointments, “over a quarter had wait times of more than one month.”

Past increases in Medicaid eligibility have routinely resulted in people replacing private coverage with government assistance. One 2007 study found that for every 10 people gaining Medicaid, six simply replaced private coverage. In addition, Medicaid has been shown to discourage both work and saving.

Medicaid Expansion Is Unwise and Unaffordable

Despite Medicaid’s long-standing problems, Obamacare required states to expand eligibility to everyone in households at an income below 138 percent of the federal poverty level, or lose all federal Medicaid funding. When the Supreme Court ruled in June 2012 that Obamacare’s Medicaid expansion was unduly coercive on states, it essentially made the expansion optional.

For the newly eligible people – those in households with income below 138 percent of the FPL who were not eligible under previous state criteria – Obamacare provides a higher federal reimbursement rate than it does for the traditional Medicaid population. The higher reimbursement rate – equal to 100 percent through 2016 and gradually dropping to 90 percent – was designed to avoid the appearance of an unfunded mandate on the states. Despite the promise of nearly complete federal financing, only slightly more than half of states have expanded their programs.

Given massive federal budget deficits, a low level of working-age men in the workforce, the program’s existing problems, and the incentive for states to favor new able-bodied recipients over the needy, Obamacare’s expansion of Medicaid is both unwise and unaffordable.

Issue Tag: Health Care