Health Care

Study undermines Medicaid expansion claim

December 6, 2019

Ray Carter

A new study by the Commonwealth Fund shows nationwide health insurance costs increased significantly from 2008 to 2018 with rising premium contributions and deductibles for those with employee-provided insurance.

But the increase in Oklahoma was less than in most states, which indirectly undermines a key claim of Medicaid-expansion supporters.

In Oklahoma, the Commonwealth Fund found the average single-person deductible for employer coverage was $1,683 in 2018, and that the average annual employee premium contribution for single coverage was $1,293.

However, those figures ranked 12th lowest and 11th lowest, respectively, among the 50 states. That Oklahoma—which has not expanded its Medicaid program—has seen out-of-pocket employee costs for employer-provided insurance rise at a slower rate than the national average and less than in many Medicaid-expansion states runs counter to a key talking point of expansion proponents.

Supporters of Medicaid expansion often argue that expansion reduces cost-shifting to private insurance. For example, the pro-expansion Center on Budget and Policy Priorities says that states that do not expand Medicaid will experience “higher private insurance premiums,” while states that do expand the welfare program will have “lower premiums for insurance in the individual market.”

But Edmund F. Haislmaier, senior research fellow at the Heritage Foundation, notes that American Hospital Association (AHA) data on payment-to-cost ratios highlights how hospitals lose money treating Medicaid and Medicare patients and the resultant cost-shift to privately insured patients.

As of 2016, the most recent year available, the AHA reported Medicare paid 86.8 percent of cost, while Medicaid paid 88.1 percent of cost, meaning hospitals were losing money treating patients in both groups. In contrast, private insurance paid 144.8 percent of cost.

“So there’s a 45-percent markup to private pay,” Haislmaier said. “If you use that, you can say, ‘Well, if we just expand the number of people you’re losing money on, doesn’t that just expand your incentives to cost-shift?”

Oklahoma hospital officials, who are among those advocating for Medicaid expansion, have conceded Medicaid generates higher insurance costs for people who have private-market insurance coverage through an employer.

At a September meeting of the bicameral Healthcare Working Group at the Oklahoma Legislature, Jay Johnson, chairman of the Oklahoma Hospital Association’s executive committee, told lawmakers Oklahoma hospitals “don’t make a profit” off Medicaid and Medicare patients because of those programs’ lower payment rates.

As a result, Johnson said Medicaid creates a “hidden tax” on other citizens.

“The hidden tax is that all of us that have commercial insurance pay exponentially more because our government programs don’t pay enough for us to break even,” Johnson said.

Rea S. Hederman Jr., executive director of the economic research center and vice president of policy at the Buckeye Institute in Ohio, is a skeptic of some Medicaid cost-shifting arguments, which he suggests assume medical providers will act against their financial self-interest.

“Everybody basically has a price they’re willing to pay,” Hederman said. “Companies will basically charge the most of the market price. So the problem with cost shifting, or a lot of these hospitals, is providers are saying, ‘We’re not charging private providers as much as they’re willing to pay, and that’s why Medicaid is a good deal for us.’ And I think that’s a dubious assertion.”

Even if Medicaid expansion generated additional funding for hospitals, he suggests it is unlikely the infusion of cash would be transformed into lower charges for those with commercial insurance.

“The assumption is if you expand Medicaid, hospitals or providers are charging patients’ insurance companies less than they could, right?” Hederman said.

Medicaid expansion’s impact on private insurance rates is also tied to the demographic composition of those added to the Medicaid program. Hederman noted some officials argue Medicaid expansion can drive down private insurance costs, “but the only way that works is if unhealthy people left the private insurance market and entered into Medicaid, so you’re making the risk pool better.”

“To the extent that Medicaid expansion takes healthy, working adults out of the private insurance market and puts them in Medicaid, that will increase the cost of private insurance,” Hederman said.

A ballot measure that will go before Oklahoma voters next year would expand the state’s Medicaid program, adding up to 628,000 able-bodied adults to the Medicaid system at a state taxpayer cost of up $374 million annually. That proposal would also make Medicaid benefits a constitutional right for the expansion population, but not the aged, blind, and disabled currently covered by the program.