WHY THE ‘PRIVATE OPTION’ ISN’T PRIVATE AND SHOULDN’T BE AN OPTION
ObamaCare’s Medicaid expansion destroys states’ budgets, inflicts serious economic harm, and does little or nothing to help the uninsured.
Many officials in “red” states apparently share that view, but the offer of “free” money from the federal government has proven to be extremely tantalizing. Some of these states are therefore seeking a compromise option by applying for a “waiver” from the federal government. The waiver would allow the states to funnel federal Medicaid funds into a state-designed system rather than to an ObamaCare exchange.
Arkansas’ “private option” went into effect earlier this year. Iowa, Indiana, Michigan, Pennsylvania, and Idaho are considering similar approaches.
South Carolina tried the same thing in the 2013 legislative session with the “Responsible Consumer Healthcare Program.” That bill didn’t go anywhere after several of the bill’s sponsors (having learned from SCPC members that it was little more than Medicaid expansion by a new name) withdrew their names from it. House Republicans then introduced a proviso into the budget that would have enacted accomplished largely the same ends as an expansion of Medicaid, only by direct payments to hospitals for uncompensated care. Finally, an item in this year’s budget would have created a committee aimed at putting Medicaid expansion back on the table (that budget line was vetoed and the veto sustained). Meanwhile, the state Department of Health and Human Services – an agency directly under the governor – has actively sought ways to put more people on Medicaid so that it can draw down more federal Medicaid dollars: and this has drawn not a peep of protest from lawmakers.
One could be forgiven, then, for thinking South Carolina lawmakers are intent on expanding Medicaid by one means or another. Plans like the “private option” are supposed to move Medicaid funding more efficiently than the federal system does, thereby more bang for the taxpayers’ buck, while still leaving the state itself free from added cost. Yet as the experience of Arkansas amply demonstrates, the reality is something different.
Per-person implementation costs have consistently risen over the first few months of the Arkansas program’s existence, and are now over the federally mandated cap that was negotiated as part of Arkansas’ waiver. Basically, the state of Arkansas will now be paying hundreds of millions of dollars out of its own pocket to keep Medicaid going indefinitely. Such reports have caused some to call the program a “national nightmare” and one Senator from Arkansas to write an op-ed in Utah urging the legislature of that state “to avoid repeating Arkansas’ mistake”.
What went wrong?
The “private option” was supposed to employ “free-market” principles to ObamaCare’s Medicaid expansion and make the program more efficient, but that’s not what Arkansas actually implemented. As the Manhattan Institute’s Avik Roy has correctly argued, the “private option “applies a kind of private-sector window dressing on the dysfunctional Medicaid program.” The inescapable reality is this: When you take funding from the federal government, the federal government gets to decide where that funding goes. The federal Department of Health and Human Services has made that crystal clear that states will expand Medicaid as prescribed under Obamacare, or they will not expand Medicaid at all.
Indiana’s “Health Indiana Plan 2.0” suffers from the same problem. Originally billed as an expansion of state and federal funding for the “Health Savings Accounts” that Indiana has been successful with in the past, the new plan would wholly change the benefit and co-pay structures of that system, rendering it indistinguishable from ObamaCare. Michigan’s HB.4714 was largely based on Indiana and Arkansas’ programs. Although Idaho lawmakers haven’t pushed a specific bill yet, many signs point to an upcoming bill being “Obamacare by a different name.” Pennsylvania’s expansion is in lockstep with the federal program. Iowa tried to use different benefit and pay-sharing standards with their “Health and Wellness Plan,” but state officials were told No by the federal government on all but one point. If a state wants Medicaid funding, they have to go along with the failed standards prescribed by the federal government.
And that means the same prohibitively high costs associated with traditional expansion. Some point out that the federal government would pay 100 percent of those costs for the first three years, and then 90 percent for every year afterwards. The state’s costs would actually be pretty low, the reasoning goes, compared to the benefit from an expanded Medicaid. The problem with that, as Michael Tanner has argued, is that “10 percent of this really big number is still a really big number.” In states where data is available, the prevailing storyline is that the expansion cost much more than was projected and helped those that it was designed to help much less than was expected. Moreover, the Obama administration has already begun considering raising states’ share of the cost, a policy that would put states even further into the red.
South Carolina is particularly prone to a Medicaid-based cost explosion. Even without an expansion, the number of people enrolled in Medicaid is projected to go up 16 percent by the middle of 2015, a rate that outstrips some states that have expanded. These new enrollees aren’t covered with the 90/10 rate associated with expansion; and as costs grow, our politicians will be tempted to secure federal funds in order to help the bottom-line. Over time, however, expansion will end up just as it did in all those other states: a net budgetary loss.
In response to such concerns, some states have proposed a “trigger mechanism” in which, if costs associated with Medicaid rise above an acceptable level, the expansion will be dialed back to status quo levels. But getting rid of a government program isn’t as easy as you might expect. In fact, the Mackinac Center’s Jack McHugh has aptly compared Medicaid expansion to the Hotel of California: states can try to dial back the program any time they like, but they can never get rid of it.
To borrow an old expression, you can’t make a silk purse out of a sow’s ear. No matter what name you apply to it, expanding Medicaid will be done on terms set by federal bureaucrats, and those terms have a consistently terrible track record. South Carolina officials should reject Medicaid expansion . . . in all its forms, and under all its names.
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