No “Free Lunch” with Medicaid Expansion

If I offered you a “free lunch” every day for the rest of your life, you’d take it, right? Oh, but there are a few strings attached. The lunch may not taste very fresh, and I’m paying for it by taking money from your kids’ college fund. I should also mention that the free lunch is really a buy-one-get-one deal—you have to buy a lunch to get my free offer.

Doesn’t sound so great now, does it? The old adage is correct. There really is no such thing as a free lunch. But this is the kind of offer the federal government is giving states to expand their Medicaid programs as part of the Affordable Care Act. In Pennsylvania, Gov. Tom Corbett wisely turned down this offer with his newly proposed budget.

Critics say Corbett gave up “free money” and refused to help the poor. But the money wasn’t really free, and throwing low-income Pennsylvanians into a failing health care system isn’t a real solution.

Under the ACA, the federal government would pay the lion’s share of costs for new enrollees in Medicaid (government health care coverage for the poor and disabled). But the federal government first takes that money through taxes on individuals, families and businesses across America—including those in Pennsylvania.

The Affordable Care Act included more than 20 new taxes with a $500 billion price tag. That’s $6,363 more in taxes per family of four through 2022.

Even with these new federal taxes, taxpayers would be on the hook for billions of dollars in higher state costs. The Heritage Foundation estimates that expansion would have cost $1.3 to $5.5 billion in state taxes over the first eight years of the program. Moreover, President Obama’s 2013 budget proposal included a reduction of the federal share of the Medicaid expansion, meaning states like Pennsylvania would have to pay even more.

Besides the huge taxpayer burden of expanding Medicaid, the low-income families who really need health care will get the short end of the stick. Families on Medicaid often receive poor quality care. Nearly one in three doctors in Pennsylvania currently refuses to take Medicaid patients, because the program pays far less for services while imposing more red tape. As a result, families on Medicaid have to wait longer to get care.

A study in the New England Journal of Medicine found that 44 percent of children on Medicaid with juvenile diabetes could not get an appointment with an endocrinologist, compared with 9 percent with private insurance. The average wait time for those children was 103 days on Medicaid, more than twice as long as those who were privately insured.

Medicaid already consumes 30 cents of every dollar that our state government spends, including federal funding. Medicaid spending grew 83 percent over the past decade—nearly twice as fast as residents’ income. Unless lawmakers are able to control Medicaid spending and slow this rate of growth, tax relief for Pennsylvania families will be impossible, and the cost for Medicaid expansion will push out other government programs.

Here’s a worse proposition: The only way state lawmakers can currently reduce Medicaid spending is to cut payments to medical practitioners even more. States like California are moving in this direction, but such a policy could prove disastrous.

Hospitals would lose money. Health care providers would be forced to shift more expenses to the privately insured, driving up the cost of health care coverage. And more doctors would refuse Medicaid, reducing the access and quality of care for families.

So if expanding Medicaid isn’t the answer, what is? Gov. Corbett didn’t just say “no” to Medicaid—he asked the federal government for flexibility to fix the program. For our fiscal health, and the health of families, we desperately need this flexibility to allow state officials to design a program that fits the needs of Pennsylvanians.

State reforms to improve Medicaid services and control costs have worked elsewhere. Florida received a waiver to give poor families a credit to buy private insurance, which saved the state $118 million, and recipients were healthier and more satisfied with their coverage. Rhode Island saved $55 million over three years and improved the quality of health care through reforms made possible by a federal waiver.

Gov. Corbett made the right call by rejecting an illusory “free lunch” and demanding the ability to control Medicaid spending. That’s the kind of health care policy that will truly give low-income Pennsylvanians the health care they need.

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Nathan A. Benefield is director of policy analysis for Commonwealth Foundation, ( Pennsylvania’s free-market think tank.