by John Davidson,TPPF
On Christmas Eve, the Houston Chronicle reported that Governor-elect Greg Abbott, during a meeting with state lawmakers, had asked for more information about a deal Utah struck with the federal government to expand Medicaid under the Affordable Care Act. Some commentators took it as a sign that Texas, the largest and most vocal holdout against Medicaid expansion, might be open to the kind of arrangement that Republican leaders in Arkansas, Utah, and a handful of other GOP-controlled states have made with the Obama administration—namely, to accept a slightly modified version of Medicaid expansion that uses federal dollars to pay for private coverage.
Those eager to see Medicaid expanded in Texas—and there are many—were probably reading too much into the governor’s curiosity about the Utah plan. As attorney general, Abbott has described Medicaid expansion as “a bargain I’m not willing to make,” and after the Chronicle’s article appeared his office clarified that he has no plans to stop fighting the Affordable Care Act as governor.
Nevertheless, the story heralded the revival of the Medicaid expansion debate ahead of the new legislative session, which began this week. Efforts to do so failed in the 2013 session, and the Lege has not become more receptive to the idea since then. Advocates would nonetheless like to revive the issue. Texas is a big prize for ACA supporters. It is the largest state to reject the Medicaid expansion thus far, and it has the nation’s highest uninsured rate and largest uninsured population—about 5.7 million people, according to the U.S. Census Bureau. If Texas proceeded with expansion, an estimated one million people could gain coverage, with the federal government covering ninety percent of the cost, at least at first.
From that perspective, it’s hard to see how anyone would oppose expansion, and a typical refrain is that the opposition is motivated by ideology, not actual data. The editorial board of the Houston Chronicle, for example, recently characterized expansion as “common sense and good public policy” and opposition as “lock-step ideology and ramrod political rigidity.” Beyond that, the editors argued, rejecting the expansion would mean forgoing an estimated $90 billion in federal funding over the next decade. It would be tantamount to rejecting an economic stimulus courtesy of the federal government.
The Chronicle is right that some conservatives have an ideological objection to Medicaid expansion. Under the ACA’s original terms, expanding Medicaid was mandatory: states would lose all federal funding for the program if they failed to extend coverage to those earning less than 138 percent of the federal poverty level, or about $16,100 a year. The implications of that were not merely budgetary. What had always been a program designed to cover the disabled, the indigent elderly, and low-income pregnant women and infants would extend coverage to a new population—able-bodied, working-age adults, including those without children. If not for the Supreme Court’s 2012 ruling that the mandatory expansion provision was tantamount to coercion, the ACA would have transformed Medicaid from a narrowly tailored health insurance program to a broad-based entitlement.
Let’s set that aside, however, and focus on the data, which is more relevant from the Lege’s perspective—and more complicated than supporters are suggesting. The Chronicle’s fiscal argument echoes a much-cited 2013 study in which Billy Hamilton, a former deputy state comptroller, argued that Medicaid expansion in Texas would save money, create jobs and drive economic growth across Texas. The reasoning is that Texans are, in some sense, already paying for the uninsured and underinsured through local charity care programs funded by state and local taxes. By taking the expansion, in other words, Texas would be able to cover those costs with federal money instead. (This is the official line of the Texas Hospital Association, which claims Texas hospitals spend about $5 billion a year on “uncompensated care” for the uninsured and that federal Medicaid expansion funds would offset those costs.) Meanwhile, by replacing state and local funds with federal funds, the theory goes, Texas communities would benefit in the form of lower property taxes while an influx of federal funds would create healthcare jobs and stimulate the economy. The economic activity generated by expansion, in Hamilton’s analysis, would create more than 230,000 jobs by 2016 and boost economic output by $67.9 billion, adding $2.5 billion to local revenues between fiscal 2014 and 2017.
But hospital finances, alas, are not quite that simple—and neither are the economic effects of expanding publicly-financed healthcare. What THA and similar groups summarize as “uncompensated care” is actually a combination of bad debt, charity care, and “under-reimbursement” for Medicaid. Of these, bad debt, accruing when hospital patients don’t pay their medical bills, is by far the largest share of most nonprofit hospitals’ uncompensated care costs. Since most bad debt comes from insured patients, Medicaid expansion wouldn’t mitigate this portion of uncompensated care. Charity care, typically the smallest portion of uncompensated care, is the cost of programs that provide care for low-income uninsured patients, which all nonprofit hospitals in Texas must offer. Although programs differ, they tend to have income limits well above Medicaid eligibility levels, and would not disappear with Medicaid expansion. The third category, under-reimbursement for Medicaid, is what hospitals claim they are shorted by the state when caring for Medicaid patients; the state pays significantly less than what private insurers typically would. Ironically, this segment of uncompensated care would doubtless increase under Medicaid expansion, as more patients would be enrolled in the underpaying program.
As for the economic effects of expanding public coverage, far from being an economic driver, there’s some evidence that Medicaid expansion could swamp state budgets. California has gone about implementing federal healthcare reform with gusto, and the costs have now shown up in the state budget, which Governor Jerry Brown released January 9. Enrollment in the state’s Medicaid program, Medi-Cal, has exploded since the ACA took effect, climbing from less than 8 million in 2012-13 to an estimated 12.2 million this year. More than one in three Californians are now onMedi-Cal, and the costs are daunting. Although the state brought in $1.2 billion more in tax revenue than expected in the first five months of the fiscal year, the growing Medicaid rolls are projected to cost the state nearly $1 billion just for the “previously eligible” population, to say nothing of those newly eligible because of expansion, whose costs states must begin sharing with the federal government beginning next year.
There are indirect costs to consider, too. A recent study by economist Robert Book at the American Action Forum projects Medicaid expansion will result in a direct net loss nationwide of more than 206,000 full-year-equivalent jobs between 2014 and 2017, and losses of up to $174 billion in economic growth over a decade. In Texas, equivalent job losses would amount to 54,445 during that three-year period, with economic losses of about $46 billion over a decade.
If that seems counterintuitive, part of the reason lies in how we think about health care spending and the economy. Katherine Baicker, a health care economist at Harvard—one of the researchers behind a landmark study of Oregon’s Medicaid system that found Medicaid patients were forty percent more likely to use the emergency room for non-emergencies than the uninsured and measured no difference in health outcomes between the two groups—argues that more spending on health care isn’t necessarily good for the economy. She cites mounting evidence that our health care system “could deliver better care without spending more” and suggests “the increase in resources devoted to health care has not generated commensurate value.” In other words, the U.S. health care system is wildly inefficient. Baicker is hardly a conservative, and actually suggests Medicaid expansion might be a good way to help low-wage workers who lose employer coverage.
As for the question of whether Medicaid expansion would create jobs in the health care sector, the real-world experience of states that expanded Medicaid last year suggests otherwise. Economists at the Altarum Institute noticed that health care employment increased in the first three months of 2014, so they decided to track it and see if expansion states created more health care jobs than non-expansion states. In fact, they found the opposite: health care employment grew faster in states that didn’t expand Medicaid last year, with non-expansion states increasing health care employment by 25 percent more than expansion states. Medicaid is a health care program, after all, not a jobs plan. As Baicker maintains, “the bottom line is that employment in the health care sector should be neither a policy goal nor a metric of success.”
That’s sound advice for Texas lawmakers as they wade back into the Medicaid expansion debate this session. Whatever the potential merits of expansion, job creation is probably not one of them. Injecting billions of federal tax dollars into Texas’ Medicaid system, which the recent Sunset Advisory Commission review revealed to be even more broken and disorganized than many thought, is unlikely to produce an economic boon. If Governor Abbott and the Legislature decide to go the way of California and Utah, they shouldn’t kid themselves that they’re doing it for economic reasons.
John Daniel Davidson is the director of the Center for Health Care Policy at the Texas Public Policy Foundation.