The decision states face of whether to expand Medicaid to non-disabled, working-age, childless adults—the Affordable Care Act (ACA) primary expansion population— involves tradeoffs. These tradeoffs include higher taxes, reduced spending on items like education, transportation, or infrastructure, or reduced spending on other Medicaid populations such as the disabled, children, or the elderly. The ACA funding formula allows states to pass a much greater share of the costs of covering non-disabled childless adults to federal taxpayers, but the tradeoffs still exist.
In a previous piece, I argued that states could have expanded Medicaid to this population before the ACA and received their normal federal reimbursement rate, which on average covers about 60% of the bill. The decision of most states not do so was an indication that the costs of expansion to states exceeded corresponding benefits even when the federal government paid at least half the bill.
There is a large amount of evidence that suggests Medicaid is a poorly performing program that should be reformed and not expanded. Research last year by economists at MIT, Harvard, and Dartmouth found that enrollees receive just 20% to 40% of value for each dollar Medicaid spends on their behalf. Abundant prior research suggests that Medicaid has little beneficial effect on enrollees’ health and that enrollees tend to have poor access to a usual source of care, overutilize emergency rooms, and too often receive inferior care. Medicaid expansions are also associated with many people replacing private coverage with Medicaid.
As a result of Medicaid’s many problems, the decision facing states about whether to expand under the ACA is not nearly as simple as former Secretary of Health and Human Services (HHS) Kathleen Sebelius suggested when she referred to states refusing to expand as “morally repugnant and economically stupid.” If it were, far more than 30 states would have adopted the ACA’s Medicaid expansion because of the allure of “free” federal money and the enormous pressure from powerful special interest groups, particularly hospitals and insurers, to expand.
States Could Expand Medicaid to Non-Disabled, Childless Adults Before Obamacare
In order to participate in Medicaid and receive federal funding, states must cover certain populations and provide certain benefits. Prior to the ACA, the mandatory populations generally consisted of low-income children, pregnant women, people with disabilities, and lower-income seniors.
Prior to the ACA, states looking to expand Medicaid or Medicaid-like coverage to other populations, such as non-disabled, childless adults, utilized Section 1115 waivers. These waivers authorize the HHS Secretary to waive compliance with certain federal Medicaid requirements and provide federal funds for costs that would not otherwise be reimbursed. Section 1115 waivers are supposed to be budget neutral, meaning that federal spending under a waiver cannot exceed what federal spending would have been without the waiver.
In practice, the federal government often fails to ensure budget neutrality. The Government Accountability Office reported in 2013 that waivers initiated in four states exceeded estimated costs by a total of $32 billion. Among the problems, GAO found that HHS uses inappropriate baselines from which to measure spending without the waiver. For example, Arizona’s 1115 waiver to expand Medicaid last decade—discussed in more detail below—produced an explosion in both state and federal Medicaid expenditures.
According to the Kaiser Family Foundation, 18 states received 1115 waivers prior to the ACA to expand Medicaid or Medicaid-like coverage. Although there are exceptions, these states expanded coverage to non-disabled, childless adults with income up to about 100% of the federal poverty line (FPL), an amount equal to roughly $11,000 for a single person in 2011.
Five of the 18 states enrolled people in coverage that complied with all Medicaid requirements. In 13 of the 18 states, lower-income childless adults could enroll in Medicaid-like coverage. These programs did not satisfy all federal Medicaid requirements and might have had enrollment caps, covered fewer services, and required beneficiary payments like premiums and cost sharing amounts. According to Kaiser, at least 1.77 million non-disabled, childless adults were enrolled in Medicaid or a Medicaid-like program as of June 2012.
Few States Accepted Obamacare’s 2010-2013 Medicaid Offer
The ACA provided states with an option to childless adults below 133% of the FPL at their regular federal reimbursement rate before the ACA’s elevated reimbursement rate began in 2014. Only six states took advantage of this offer and two of these states—Colorado and New Jersey—extended eligibility only to those with income up to about 20% of the FPL. The decision of the vast majority of states not to expand at the normal Medicaid reimbursement rate shows that most states did not value covering non-disabled, childless adults in Medicaid relative to other state priorities, like lower taxes or higher spending elsewhere, when the states generally bore between one-quarter (in poorer states) and one-half (in richer states) of the expansion cost.
Arizona’s Medicaid Expansion Forecast Obamacare Medicaid Expansion Spending Overruns
In 2001, Arizona received federal approval for an 1115 waiver to expand Medicaid to non-disabled childless adults and parents with income below 100% of the FPL. Both state and federal spending for Arizona’s Medicaid program exploded after it received its 1115 waiver—strong evidence that 1115 waivers are not budget neutral. In the first year the waiver was in effect, Medicaid spending leapt 33% in Arizona—two-and-a-half times greater than the comparable increase in the rest of the country. From 2001 to 2010, Arizona Medicaid spending increased from $2.7 billion to $9.4 billion. This 250% increase was more than three times the 75% increase in the rest of the country. Throughout this period, federal taxpayers paid about two-thirds of the cost of Arizona’s Medicaid spending.
A Center for Health Care Strategies 2010 policy brief analyzed ten states that previously expanded Medicaid or Medicaid-like benefits, finding that Arizona offered the best comparison of the ACA expansion population. If so, states that expand Medicaid under the ACA should brace themselves for much larger enrollment and spending than expected. In fact, data from 2014 and 2015 in states that expanded Medicaid indicates that this is already happening across the country.
