The myth of "conservative" Medicaid expansion

Photo by Spencer Selvidge

Indiana Gov. Mike Pence, a Republican, recently announced that he’d struck a deal with the Obama administration to expand Medicaid using an “alternative” program that adopts features of consumer-driven health plans like health savings accounts. The idea is that Medicaid enrollees will contribute a set amount each month based on their income, giving them a stake in their health care coverage.

It’s a fine idea, in theory. The Texas Public Policy Foundation has advocated for similar reforms of Texas’ current Medicaid program. But there’s a difference between Medicaid reform and Medicaid expansion, and Indiana’s plan is yet another Medicaid expansion under Obamacare.

Pence and a handful of other GOP governors might claim that their state-specific versions of Medicaid expansion are conservative, but Texas lawmakers shouldn’t be fooled. You can’t reform Medicaid by making cosmetic changes and extending full coverage to able-bodied, working-age adults — and that’s precisely what the state Medicaid expansion “alternatives” do.

Consider Indiana’s expansion plan. It’s based on a program that began in 2008, the Healthy Indiana Plan, or HIP, which expanded Medicaid eligibility to 200 percent of the federal poverty level (at the time about $44,000 a year for a family of four). The plan offered limited coverage coupled with a health savings account, or HSA, to which enrollees were required to contribute monthly based on their income. The account was funded mostly with state dollars, but the plans had a $1,100 deductible before coverage kicked in. If enrollees failed to make monthly payments, they could be kicked out of the program for a year. To ensure that costs didn’t spiral out of control, total enrollment in HIP was also capped based on available funding.

By contrast, Indiana’s Medicaid expansion scheme, called HIP 2.0, does away with most of these controls and offers far more generous benefits with much weaker consequences for nonpayment. The two-tiered program offers a HIP “plus” plan that covers the entire cost of care — no deductibles, copays or any other costs — as long as enrollees make minimal monthly payments to their HSA. For those below the poverty line, the HIP “basic” plan doesn’t require contributions to the HSA, and cost-sharing for copays matches what’s already in the traditional Medicaid program — no more than 2 percent of income.

But perhaps worst of all, the Indiana plan traps working Hoosiers in a government welfare program that discourages work and self-sufficiency. For those at the income limit of 138 percent of the federal poverty level (about $16,100 a year for an individual), the total annual out-of-pocket cost for coverage under HIP 2.0 is about $322. People who earn more than that will lose eligibility for Medicaid and be forced to buy coverage on the Obamacare exchange, where it will cost them about $2,800 — an increase of 769 percent.

There's not much incentive for enrollees to increase their income and move out of Medicaid coverage. By incentivizing dependence on Medicaid, Indiana taxpayers will be faced with growing Medicaid costs, especially as the federal match rate drops off beginning in 2016 and the state assumes more costs for the expansion group.

It’s the same story in other states. Arkansas’ much-hyped “private option” for Medicaid expansion spent $9.3 million more in its first nine months than the state said it would. The Government Accountability Office estimated last year that the private option has cost $778 million more than traditional Medicaid expansion would have. Recently, state lawmakers chose to end the plan by 2017, citing cost overruns.

In Utah, Gov. Gary Herbert, a Republican, tried to get work requirements attached to his Medicaid expansion scheme. But in the end it was watered down to a voluntary “work effort benefit” that reduces some Medicaid cost-sharing if enrollees participate in a state job-search program — hardly the “non-negotiable” work requirement the governor had in mind.

Every state that has tried to negotiate for flexibility has run into the same problem: The federal government writes the rules for Medicaid, and the feds aren’t interested in real conservative policy reforms — things like requiring personal responsibility (including the threat of losing coverage for nonpayment), paying significant penalties for accessing routine care in the emergency room, and a real work requirement for able-bodied adults.

As long as Washington is in charge, states will never have the flexibility to enact those kinds of reforms.

Lawmakers will no doubt hear calls this session for a “Texas way,” but they should keep in mind the other states that fell for that argument. Expanding Medicaid with federal dollars isn’t the same thing as reforming the current program. What’s more, it means accepting federal rules that preclude any meaningful reform.

Make no mistake — Texas Medicaid needs reform. We will likely spend about $62 billion in the upcoming biennium on a program that provides increasingly poor access to providers and substandard health outcomes to our neediest residents. Forcing more than a million able-bodied Texans into a strained program will only make it worse. Texas lawmakers should say no the false promise of a “conservative” Medicaid expansion.

Disclosure: The Texas Public Policy Foundation is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

Arlene Wohlgemuth

Executive director of the Texas Public Policy Foundation

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