Obamacare Blows Up Medicaid Costs in States That Expanded It

(Quin Hillyer, Liberty Headlines) One of the four main sponsors of last week’s last-ditch effort to replace Obamacare is putting a spotlight on one of the law’s main problems, which last week’s failed Senate bill would have fixed.


Ron Johnson Photo by Gage Skidmore (CC)

Conservative Republican Sen. Ron Johnson of Wisconsin had joined Dean Heller of Nevada as one of the two less-frequently named sponsors of what was commonly called the Graham-Cassidy bill. The bill would have taken all the federal funding for Obamacare, including for its expansion of Medicaid, and used a per-person formula to divvy the money up and send it back to the individual states as “block grants” that the states could use to design their own health-care systems.

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Liberals particularly criticized the inclusion of Medicaid in the block grants, claiming the overall funding level would have the effect of causing major cuts in Medicaid. The claim was true only within the rules of the Washington budget game whereby liberals say that slowing the rate of increase of a program somehow amounts to a “cut” in the program.

That’s where Johnson came in, with a series of letters that effectively highlighted the problem of exploding Medicaid costs. The letters make the case that it is the crazy-high expense of the program, not the attempt to better manage the costs, which is indefensible.

The key paragraph is worth quoting in full.

“Federal Medicaid expenditures totaled $246 billion in fiscal year 2009, increased to $299 billion in fiscal year 2014 and are projected to rise 96 percent to $588 billion by 2025. A primary cause of this increase is the ACA Medicaid expansion. Current CMS and other data show original Medicaid expansion per-enrollee spending and overall enrollment projections were significantly understated.  In 2014, CMS predicted per-enrollee spending on newly eligible adults in 2015 would be $4,281, but the actual amount was $6,365 (49 percent higher). Accordingly, CMS increased per-enrollee projections for fiscal year 2023 from $5,076 to $7,027 (38 percent higher).”

Doing the arithmetic on that $53 billion growth in just the five years from 2009 to 2014 shows that the growth rate exactly doubled the inflation rate. If Medicaid costs merely kept up with inflation, the total by 2014 would have been just $272.5 billion, not $299 billion.

In addition to seeking a better understanding of how costs rose so rapidly, Johnson tacitly makes the case that with better management, Medicaid’s cost growth should be kept far closer to the ordinary inflation rate, without under-serving the needy.

Johnson’s letters were sent to the Center for Medicare and Medicaid Services and to the governors of eight states experiencing high Medicaid cost growth. Right now, the federal government pays only about half of Medicaid’s costs; The states handle the rest. And state-level spending is increasing at an even faster rate than federal spending.

Part of this increase is caused by incentives and mandates included in Obamacare. Yet, as the Rural Health News Service (among many other outlets using similar language) reports, “states have found that Medicaid is consuming larger shares of their annual budgets, often crowding out other needs like fixing roads.”

Still, the idea behind giving state’s total control rather than partial control over Medicaid spending – an idea central to the Graham-Cassidy bill – is that states will innovate and find ways to get more bang for the buck while perhaps doing an even better job serving the truly needy.

“States have actually been quite good at delivering health coverage efficiently through Medicaid,” Larry Levitt of the Kaiser Family Foundation, a health research group, told The Atlantic.

A source intimately involved with the Graham-Cassidy bill’s development – not from Johnson’s office – tells Liberty Headlines that while the bill failed to garner enough support to pass before the Sept. 30 budget deadline, it or a very similar bill remains very likely to be revived for either the 2018 or 2019 budget years. The source says several of the Republican senators not yet on board were actually closer to “yes” than had been reported.

Whatever information Johnson garners from his letters, then, may yet be helpful in the long-running effort to find an effective, quality-enhanced way to replace Obamacare.