Medicaid is arguably the worst health insurance program in the country, and ObamaCare did nothing to fix its many problems.
That's one reason why several states have decided to reject the legislation's requirement to expand an out-of-control program to an estimated 16 million more Americans.
Medicaid is actually three different programs. It provides health insurance for low-income children, pregnant women and some adults; it is the primary source of coverage for the disabled; and it covers certain costs for poor seniors, including nursing home care and the premiums and out-of-pocket costs not covered by Medicare.
While low-income children, pregnant women and some adults account for 75% of total beneficiaries, they only spend 35% of Medicaid funds. The disabled, by contrast, are 15% of the Medicaid population but account for 43% of expenditures — and their number has been exploding during President Obama's first term.
Growing costs for the disabled and nursing home populations were making Medicaid financially unsustainable for states even before ObamaCare passed.
And the legislation only increases those costs.
With respect to Medicaid's basic health insurance coverage, expansion proponents claim that hospitals will now be getting paid (via Medicaid) for services they had been providing for free.
A Democrat's Solution
However, Medicaid underpays hospitals for care, about 66% on average of what private health insurance would pay, according to the Centers for Medicare and Medicaid Services' (CMS) Office of the Actuary. And that percentage will decline.
Our calculations, which are in line with other studies, suggest that low Medicaid and Medicare reimbursement rates lead to about $78 billion being shifted to private insurance.
Many hospitals were able to cover some of their uncompensated-care costs because the federal government provides them with subsidies. But ObamaCare phases out those subsidies, leaving private insurance as the only target for cost shifting.
However, the Department of Health and Human Services is tracking premiums and harassing insurers that want more than a 10% annual increase, which could limit the impact of Medicaid costs shifting.
One former state Medicaid director tells us the uncertainty caused by the expanded Medicaid coverage, the decline in the subsidies, and the need to cost shift is already inflating health care costs.
As a result, states and counties may be compelled to funnel more taxpayer money to hospitals to make up the Medicaid shortfall. And states may not have the money.
Indeed, there are already news stories pointing out that several states are years behind in reimbursing hospitals for Medicaid expenses. The expansion will only make that problem worse.
Given the growing costs, it is not only reasonable but advisable for states to reject Medicaid expansion.
But that doesn't mean states can't address the needs of the low-income uninsured. One solution is to try what former Tennessee Gov. Phil Bredesen, a Democrat, did seven years ago.
In 2006 Tennessee created CoverTN, which allowed those without access to full employer coverage to get a limited-benefit policy that provided a maximum of $25,000 coverage a year.
The policy initially cost $150 a month, which was split equally by the state, employer and employee. Doctors' visits cost a $15 co-pay, and a mostly generic prescription drug plan was included.
Won't Cooperate
Of course, states could tweak several elements of such a plan to suit their needs and budgets, but Bredesen considered the program a great success, providing coverage to thousands of low-income workers.
States could also consider a high-deductible plan (e.g., $1,500), again with a $25,000 maximum payout.
Then the state could make a deposit, say $800, to each beneficiary's Health Savings Account, which would be used for smaller and routine expenditures.
While these are two examples, health insurers, working with the states, could come up with a range of innovative, low-cost plans. Indiana Gov. Mike Pence, for example, wants to build on its HSA option known as Healthy Indiana.
Had the Department of Health and Human Services (HHS) been willing to give states the flexibility to try such options — flexibility that many states have been demanding — conflicts might have been resolved early on. But HHS has made it clear it's their way or no way.
HHS's intransigence shouldn't stop the opt-out states from experimenting with affordable expansion ideas.
And better reimbursements could improve access to treatment and potentially lower costs by allowing individuals to avoid emergency rooms and inpatient stays.
Health insurance for the poor doesn't have to be poor insurance. And yet that's exactly what Medicaid is.
Obama refused to try new and innovative ways to cover the low-income populations. Maybe the opt-out states can.
Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Litow is a retired actuary and past chairman of the Social Insurance Public Finance Section of the Society of Actuaries.