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August 16, 2016

Surprise! Medicaid Expansion Cost Much More than Projected


States that refused the Affordable Care Act’s Medicaid expansion are looking much smarter these days, because they never bought the liberal lie that Medicaid expansion would be cheap.
For years government-run health care advocates have chided and derided those states that refused to expand Medicaid, and they succeeded in persuading some. About half of the states took the Medicaid bait initially. Today, 25 states plus the District of Columbia have embraced expansion, six more are expanding but using an alternative approach, and 19 have refused to be sucked in.
Proponents argued it was “free money”—the federal government would be paying virtually the entire cost for the new enrollees for the first three years, eventually declining to 90 percent.
How could heartless governors and state legislators, they asked, allow people to “die in the streets” when all they had to do was say yes to big government?
But it turns out that “free” costs a lot more than it used to, and several of those states that chose expansion may be having buyers’ remorse.
The Centers for Medicare and Medicaid Services (CMS)—the federal agency that administers Medicaid—has just released a study showing that those newly enrolled Medicaid beneficiaries cost 49 percent more than the government originally predicted.
Imagine that!  The government low-balled the cost of a new program. Who’d a thunk it?
While government bureaucrats appear surprised, no one was fooled but the fools. That is, the people who created and sold the Medicaid expansion idea.
Of course, it’s possible the bureaucrats were never fooled, that they just tossed out low numbers to give elected officials enough cover to sign on.
The government’s only explanation for its under-projection is that the new Medicaid enrollees must have more serious medical conditions than originally expected.
It’s true that the Medicaid population has, on average, higher health care costs, but actuaries have known that for years and know how to factor that in.
No, the reason for the spending explosion is that the Medicaid expansion insulated some 10 million people from the cost of care.
Medicaid beneficiaries pay little or nothing out of pocket, and have no economic incentive to limit their health care spending—and so they don’t.
It’s part of an ideological battle the right has been having with the left for years: The right argues that when people are insulated from the economic cost of their decisions, they spend more. The left has never believed it.
The Medicaid cost explosion provides one more example that incentives matter.


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