Medicaid Expansion Costs

By August 17, 2016Commentary

Anyone who still doesn’t think we were sold a bill of goods on the cost of the reform law is in la-la land.  There have been a lot of headlines about exchange insurance premium increases; less attention has been paid to the fact that the Medicaid expansion is also costing much more than projected, as is fully laid out in a new report from the CMS Office of the Actuary.   (CMS Report)   So here is how bad it is:  one year ago the average per year cost for a Medicaid expansion enrollee was supposed to be $4281.  The new report finds that they actually cost an average of $6366; that is 50% higher.  Not sure how you make such a bad error, unless maybe you were trying to hide from people as long as possible just how much the Medicaid expansion is going to cost taxpayers.  The really bad news is that the Medicaid expansion, unlike the individual mandate, actually has added tens of millions of people to the program and currently covers over 65 million Americans.  Right now the federal government (i.e., the federal taxpayers) is paying most of the cost, but eventually it all will fall on the states, which are woefully unprepared.  As with the health plans participating on the exchanges, who have almost all discovered that they underestimated the health needs and the cost of their new enrollees, and subsequently have bailed from the exchanges, the “experts” are finding that “pent-up” demand for health services for the new Medicaid enrollees was greater than expected and that there is some adverse selection effect.  This is exacerbated by the gold-plated Medicaid benefit design, in which everything is basically free and lots of nonsensical services, like sex-change therapy, are covered.  Medicaid tries to compensate for the excessive cost of this benefit design by paying providers as little as possible, but this strategy is beginning to wear thin, as access is compromised by a lack of providers willing to accept such paltry reimbursement.

According to the report, Medicaid spending was $554 billion in 2015, 12% higher than 2014 spending, and 5% higher than what was projected.  HHS, which has such a great record of accurately projecting Medicaid spending, is now saying the annual rate of growth in Medicaid spending will be 6.4% for the next ten years.  While even that rate is bad news, no reason not to assume it will actually be closer to 9%.  This program is an inexcusable fiscal disaster.  It is fundamentally unfair to the taxpayers, most of whom have commercial health plan benefits that over far worse coverage.  Medicaid recipients should be required to receive their care in federally qualified community health centers and other low-cost providers, should receive only benefits actually necessary to treat real health needs and should be penalized for repeated failure to engage in responsible health behaviors, like not smoking, having a healthy weight and avoiding substance abuse, by losing coverage.  We cannot afford this program and many other similar ones, and the consequences of our reckless spending are inevitable and likely will become apparent soon.

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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