What are the Medicaid Expansions?
Millions of voters in a dozen states are facing a serious question when they vote for various local, state, and federal elections this midterm: should their state expand Medicaid?
Unfortunately, what that question means and what a "yes" or "no" entails is not clear to many Americans. Sure, you'll hear the usual bickering on the campaign trail, but it probably doesn't help you have an opinion when the details are left unexplained.
The Quick Rundown
The Medicaid expansion updates a state's Medicaid eligibility rules to cover all adults with and without children at or below 138% of the federal poverty line (FPL), a measure used to categorize income levels.
Most states have adopted these expansions since the passage of the Affordable Care Act (ACA) in 2010, the law which outlined the terms of federal funding to support these expansions at the state level.
States which have adopted the Medicaid expansions have seen significant decreases in the amount of uninsured people, and in some states, the expansion has been attributed to net savings on state health spending and job growth.
To incentivize more states to adopt, the American Rescue Plan (ARP) of 2021 included provisions to offer more federal funding to help with the up-front financial commitment required to expand Medicaid.
South Dakota will be holding a referendum in November on whether to adopt the expansion.
Where did the Expansions Come From
Medicaid was created at the same time as Medicare, but the structure of the program has made it uniquely more dependent on state-level cooperation.
The Social Security Amendments of 1965 created Medicare to serve as a federal health insurance, mostly for seniors. To serve as a health safety net, the law also created Medicaid and the Children's Health Insurance Program (CHIP) to cover low-income Americans.
While Medicare is administered almost entirely at the federal level, Medicaid and CHIP are run at the state level with significant federal funding to support the cost of the program, usually hovering between 50 and 78% of the total cost. The is the reason why different states give their Medicaid programs different names, from BadgerCare in Wisconsin to TennCare in Tennessee.
However, the state-level administration of the program also meant that eligibility requirements to have Medicaid varied from state-to-state. Many advocates and policy analysts took issue with low income thresholds that excluded large swaths of the low-income population. Consider the following:
Ultimately, two-thirds of states limited parental eligibility to less than 100% of the current poverty level (11), with individual states such as Alabama limiting the parental eligibility to as low as 23% of the federal poverty level in 2013 (10). Individuals without children have typically been ineligible for Medicaid coverage regardless of income, with only 9 states providing non-Medicaid, state-funded benefits to childless adults in 2009 (12).
Healthcare is an expensive affair, and health insurance is crucial to affording a variety of medical services from preventative screenings to procedures and drugs.
With high private insurance costs and state-level eligibility requirements many times being too low for millions of Americans to get coverage, the ACA expanded Medicaid eligibility for low-income Americans at or below 138% of the FPL.
To make the expansions easier on state budgets, the ACA outlined that the federal government would pay for 100% of the cost of new Medicaid enrollees from 2014-2016 and reduce contribution gradually until 2020. After 2020, the ACA promised the federal government would continue to fund 90% of the expansion cost for all following years.
Following the passage of the ACA, a coalition of states sued the Department of Health and Human Services on the constitutionality of various provisions of the ACA. The Supreme Court ruling on National Federation of Independent Business v. Sebelius in 2012 changed the implementation of the ACA radically.
One of the most important changes for our discussion is that the court ruled the Medicaid expansions were overreach of Congress' authority. As a result of the ruling, the states themselves had to choose to adopt the expansions through state-level executive action, referenda, or law.
By the time the COVID-19 pandemic rattled the US, many states had adopted the Medicaid expansions, but notable holdouts remained. The ARP, passed as a stimulus package in early 2021, tried to expand the incentive for expanding Medicaid.
A Medicaid expansion largely means a lot of new enrollees. The original ACA mentioned that the federal government would cover most of the cost of these new enrollees, but the ARP sweetened the deal by offering to pay a greater share of Medicaid costs for enrollees before the expansion for 2-years.
Hence, a state using the ARP incentive would be able to get most of the cost of expansion covered, but the state would also temporarily get more federal funding for costs it already faces. One analysis estimated such provisions would offset 3-6 years worth of increased state-level spending.
The expansions have had significant results in areas ranging from quality of life changes to state budgets.
The following figure outlines specific findings, but if there's one takeaway, it's that the Medicaid expansions improve the freedom of choice to spend money on matters other than healthcare.
When a patient comes into the ER without health insurance, the hospital has a legal obligation to still treat the patient. The issue is that the cost of this care is uncompensated, and many times has to come out of a state budget for uncompensated care. Similarly for state-provided health services, uncompensated care poses significant cost burdens.
The Medicaid program can offset the cost of uncompensated care by paying hospitals and other providers in a way similar to other insurance. This introduces federal support for uncompensated care that otherwise would be fully faced by the state government, and it gives extra spending power for other state-level priorities like education and economic development.
Even though federal dollars are still taxpayer dollars, Medicaid as a health insurance program can control costs over the long run by giving members access to preventative care and steering patients to lower-cost providers who have negotiated cheaper rates.
There's also the fact that such expansions free up billions in spending from low-income Americans. Money otherwise spent on exorbitantly priced medical bills can go to local and state businesses, which has already driven economic growth and tax revenues in states like Michigan.
Historically, opposition to the expansions lay in the increased state government spending. Even if the feds cover most of the cost, the state still needs money to pay for some of the expansion in the short and long-term.
Attitudes are certainly changing, inspired not only by new federal incentives for the expansions, but also from the perspective of making rural healthcare more attainable. In communities left behind by supercharged economic growth in urban cores, hospitals are closing down from insufficient revenue while incomes are stagnant and prevent individuals from buying coverage.
Take this comment from an aide to former Georgia Governor Nathan Deal on how Republicans could push for the Medicaid expansion to hold onto election victories:
For rural hospitals in places like Cuthbert, that means far fewer people showing up at their doors unable to pay for services. Republicans in recent years have promised to bring jobs to rural Georgia. They’ve worked hard at that. But regions without access to hospitals have no hope of attracting high-paying jobs.
The next hurdle may however be the healthcare lobby itself.
In one bizarre example this year, the hospital lobby shot down Medicaid expansions that saw bipartisan support in the North Carolina state legislature.
Although many of these hospitals would have incurred significant savings on covering patients without health insurance, their issue was in a measure in the expansion bill that would have loosened state regulations on where healthcare providers can open up shop.
Areas of healthcare like operating rooms generate high profit margins for hospitals. When dealing with uninsured patients, these high-margin operations offset costs. Even with Medicaid, the amount hospitals are paid are many times less than what private insurers and Medicare pay. Loosened regulations on where providers like surgery centers could geographically set up posed competition to high-margin operating rooms.
Hence, the North Carolina hospital lobby killed a popular Medicaid expansion effort.
The Bigger Picture
Healthcare policy is rarely restrained to the health industry. Because of how everyone needs it, and because of how expensive it is, the impact of bad healthcare policy can keep people trapped while effective policy can introduce cost savings that give people not only the chance to get healthcare, but also get more freedom of choice over how they attain social mobility and lead their life.