Health Care

Obamacare Medicaid expansion: Not a cure for Oklahoma health care

October 29, 2019

Jonathan Small, Kaitlyn Finley, Jonathan Ingram

Executive Summary

Some Oklahoma lawmakers have proposed a plan to expand Medicaid eligibility through the Insure Oklahoma program. But Oklahoma Senate Bill 605 and similar iterations, known as the “Oklahoma Plan,” are just a ploy to implement Obamacare Medicaid expansion in the Sooner State and shift hundreds of thousands of able-bodied, working age adults onto Oklahoma’s Medicaid rolls. The plan has three major components: (1) massively increase spending to implement Obamacare Medicaid expansion by way of premium assistance; (2) create a brand new welfare program for 628,000 able-bodied adults; and (3) propose a program that other states have found to be twice as expensive as predicted and with no measurable performance goals or changes in health outcomes. 

Oklahoma policymakers should reject Obamacare Medicaid expansion, SB 605, or any other plan to “access federal dollars” that expands welfare, and instead refocus their efforts on improving the Medicaid program for the most vulnerable and promoting meaningful health care reforms.

Many Details of Expansion Plan Remain Unknown

Alarmingly, several important details of this latest Obamacare expansion proposal, SB 605 (or any other iterations), remain unknown to the public. Proponents have not released an updated fiscal impact analysis that has been informed by the wildly exceeded estimates for cost and enrollment in other Medicaid expansion states. Although the “Oklahoma Plan” is being sold as simply making minor eligibility changes to Insure Oklahoma, the truth is that the plan will actually gut all of the most important features of the program, transforming it into an Obamacare expansion by another name. 

Insure Oklahoma relies on an enrollment cap to ensure that the program neither expands beyond available state funding nor incorporates higher copayments than Medicaid allows, and is generally only available to workers and full-time college students.[1] But expanding eligibility under Obamacare will require state officials to gut Insure Oklahoma of its most important accountability measures.

Proponents of Obamacare Medicaid expansion in Oklahoma, whether by way of SB 605, the “Oklahoma Plan,” or other iterations, are trying to entice the Legislature and the public at large with the notion that Oklahoma needs to expand welfare eligibility to 628,000  Oklahomans, while the current presidential administration is more amenable to program redesign. But no president lasts forever, and history tells us that presidents with different priorities, especially liberal ones, will gut conservative reforms in favor of their ultimate goal for a single payer health care system. 

In fact, previous federal administrations have already warned Oklahoma officials that these accountability measures would be stripped from any proposal that relies on Obamacare funding. In a letter to the Oklahoma Health Care Authority (OHCA), the director of the Centers for Medicare and Medicaid Services warned Oklahoma that "enrollment caps will not be approved" for any expansion to able-bodied adults.[2] The letter further detailed that extending the program "without any changes [was] not possible," and that any proposal to expand Medicaid would only be approved if it was "consistent with" federal guidance on the issue.[3]

Policymakers should also know that any waiver approved by the U.S. Department of Health and Human Services is likely to look very different from the original proposal. That's true even if lawmakers put in place very specific statutory requirements for Medicaid expansion.

The federal government rejected nearly all of the waiver requests Iowa initially proposed, including even minor changes— like increasing copayments for non-urgent use of emergency rooms by just $2.[4] In Pennsylvania, not a single "state-unique" request was approved as it was included in the initial waiver request.[5] Indiana's Medicaid agency had to gut its initial waiver request in order to secure federal approval.[6]

The reality is that any unique benefits resulting from any so-called “state-unique” or “conservative” plans authorized by a federal waiver can be eliminated with the stroke of a pen by the next liberal president. In fact, the Obama administration did just that to the Insure Oklahoma plan, when it forced changes on the state that dumped thousands of people out of that successful program and into the failed Obamacare health insurance exchange.[7] Oklahoma cannot rely on a temporary federal waiver to amend the state’s Medicaid program. Although the details that expansion proponents have provided are sparse, what few details are offered thus far make clear that Medicaid expansion would be a bad deal for Oklahoma.

‘Oklahoma Plan’ Would Create a New Entitlement for Able-Bodied Adults

Thousands of kids and adults with intellectual and developmental disabilities are sitting on Medicaid waiting lists in Oklahoma. That list is now at an all-time high, with individuals waiting an average of nearly 10 years to get the services they need.[8]

But these aren’t the people who can expect help under the “Oklahoma Plan.” The plan would create a new welfare program for hundreds of thousands of able-bodied adults, moving them to the front of the line while those on waiting lists get pushed even further to the back.

These newly eligible adults are in their prime working years, largely have no dependent children, and have no disabilities keeping them from gainful employment.[9] To make matters worse, up to 60 percent of potential new enrollees could be shifted into Medicaid and out of private insurance.[10] This means that most of the new able-bodied adults who could be added to Medicaid under the planned expansion will come not from the ranks of the uninsured, but from employer-sponsored coverage, from the individual market, or from the Obamacare exchange. This crowd-out is partially responsible for much higher-than-expected enrollment and costs currently plaguing other states.

Medicaid Expansion Costs Will Be Unpredictable

Although expansion proponents assure Oklahomans that just 100,000 to 205,000 able-bodied adults would enroll in Medicaid expansion, consultants commissioned by OHCA admitted that expansion would make as many as 628,000 able-bodied adults newly eligible for Medicaid.[11] Based on those who are eligible (628,000 able-bodied adults) and the national average per-person costs for Medicaid expansion enrollees, Oklahoma taxpayers’ annual liability would be up to $374 million if the “Oklahoma Plan” is implemented.[12]

According to available state data compiled by the Foundation for Government Accountability (FGA), enrollment projections for states that expanded Medicaid under Obamacare were grossly underestimated. Kentucky’s initial estimates were short by more than 250,000.[13] Ohio signed up 265,000 more able-bodied adults than expected.[14] In Washington state, just under 600,000 able-bodied adults enrolled in Medicaid, which was nearly 335,000 more adults than state officials expected to sign up.[15] In all, available data show more than 6 million more people signed up for Medicaid than anticipated across the first 24 states that expanded Medicaid.[16]

To make matters worse, per-person costs for each new enrollee were found to be 76 percent higher than initially projected by the federal government.[17] This has led to significant cost overruns in state after state. For example Louisiana’s cost overruns were $1.3 billion in the first year after expanding Medicaid.[18] Arizona’s expansion cost $698 million more than predicted within the first two and a half years.[19] Ohio expanded Medicaid in 2014, and the latest figures available show the cost has exceeded projections by an astounding $7.1 billion so far.[20] In all, Obamacare Medicaid expansion has cost taxpayers 157 percent more than initial projections.[21]

By adopting Obamacare Medicaid expansion, Oklahoma policymakers would be inviting further perpetual budget overruns and fiscal uncertainty for Oklahoma taxpayers. But worst of all, it would ultimately mean fewer dollars available for those who need them most.

Medicaid Expansion Will Raise Hospital Prices, Not Help Rural Health Care

Proponents of Obamacare Medicaid expansion in Oklahoma turn a blind eye to massive cost overruns in other states and instead claim the Sooner State must expand Medicaid in order to help nonprofit hospitals and lower medical bills for Oklahomans. However, data from other states that have expanded Medicaid show these are unfounded claims. Recent studies out of Arizona, Colorado, and California, have shown that after these states expanded Medicaid, urban hospitals raised service prices for private payers and significantly increased their profit margins, despite the fact these hospitals were already profitable before Medicaid expansion and received more reimbursements payments from taxpayers after Medicaid expansion.[22] 

Data from these studies show that urban hospitals have greatly benefited financially from adopting Medicaid expansion. It is then easy to see why the Oklahoma Hospital Association and large nonprofit hospitals have strongly supported adopting Medicaid expansion in Oklahoma since the passage of Obamacare.[23] They state they must receive more reimbursement payments from Obamacare to compensate for their “generous uncompensated” charity care, but financial documents show this is not the case for urban nonprofit hospitals in Oklahoma. 

For example, Saint Francis Hospital Inc. of Tulsa, a nonprofit with a mission statement, “To extend the presence and healing ministry of Christ in all we do,” and vocal supporter of adopting Medicaid expansion in Oklahoma, reported in its publicly filed IRS 990 forms that revenues exceeded expenses by $650 million cumulatively from 2013 to 2016. Over this same period net assets increased for Saint Francis by $472 million to nearly $2 billion.[24]  

Saint Francis’ hefty profits are not an outlier. A 2017 report from a nonpartisan think tank, 1889 Institute, analyzed over 30 nonprofit hospitals’ debts, assets, and cash savings in Oklahoma and found most were operating in the black and held sizable assets.[25] Total assets among these nonprofit hospitals amounted to $5.6 billion; average assets for each hospital totaled nearly $158 million, and average cash savings were $31 million.[26]

Big hospitals in Oklahoma tout Medicaid expansion as the one and only solution to help small rural hospitals who are struggling due to shrinking populations and high operating costs. It is important to note that most of the reimbursement funds from Obamacare expansion would stay in urban areas and financially help urban hospitals who are indeed strapped with cash, sizable assets, and generous profit margins. 

Data show that expanding is not a guaranteed cure for rural hospitals’ financial ailments. A recent report form Becker’s Hospital Review last year found that rural hospitals are still closing in states that have expanded Medicaid.[27]Instead of expanding welfare to able-bodied, working-age adults, real targeted policy reforms (discussed later in this report) are needed to help struggling rural hospitals. The evidence shows that spending hundreds of millions of Oklahoma taxpayer dollars, (most of which will stay in Oklahoma City and Tulsa) is a poor and ineffective way to help rural health care in Oklahoma.

Oklahoma Plan Is a More Expensive Way to Expand Obamacare

The central feature of SB 605, the “Oklahoma Plan,” and other iterations  is to deliver Medicaid expansion benefits through commercial health plans, instead of through the state’s existing fee-for-service system. This model has failed to deliver on its promises everywhere it has been tried and is ultimately just a more expensive way to expand Obamacare.[28]    

The  Government Accountability Office has warned state and federal officials that this model is significantly more expensive than a traditional Medicaid expansion.[29]In Arkansas, a state-funded interim evaluation of a similar plan confirmed those fears. By reviewing actual claims data for Medicaid expansion enrollees, researchers were able to compare the actual cost of the “alternative” expansion plan to what the cost would have been for those same claims under a more traditional Medicaid expansion. That evaluation concluded that the Private Option was nearly twice as expensive as traditional Medicaid.[30] Under this model, Arkansas’ expansion plan accrued more than $1.4 billion in cost overruns in its first 2.5 years, according to state data compiled by FGA.[31]

Other states have also experimented with the Private Option model. New Hampshire, for example, copied the model nearly wholesale from Arkansas. But in 2018, New Hampshire scrapped the model entirely, after state actuaries reviewed claims data and determined that the model was more than twice as expensive as a traditional Medicaid expansion.[32]

Iowa also sought to use this model for expansion enrollees with income above the poverty line. But the state ended the model after just 18 months when the program witnessed double-digit premium hikes, one carrier becoming insolvent, both carriers eventually leaving the program, skyrocketing enrollment, and massive cost overruns.[33]

In Nebraska, state actuaries estimated that using commercial plans to expand Medicaid would be nearly twice as expensive as traditional Medicaid expansion—as if expanding Obamacare weren’t costly enough.[34]Indiana has also experienced cost overruns, while Pennsylvania decided to scrap its alternative expansion plan altogether.[35]

Oklahoma Plan Will Do Little to Improve Health Outcomes

Expansion proponents claim that expanding Medicaid coverage will result in significant improvements in Oklahoman’s health outcomes, but data gathered by the Oklahoma Department of Health and America’s Health Rankings, as well as experiences in other expansion states do not support this theory. 

As OCPA recently reported during the first meeting of the Oklahoma legislature bicameral Healthcare Working Group, Buffy Heater, chief data, public policy, and promotion officer for the Oklahoma Department of Health, told group members that three behaviors (tobacco use, poor diet, and sedentary lifestyle) are tied to four chronic diseases (cardiovascular disease, cancer, diabetes, and lung diseases).[36] “Collectively, those behaviors and chronic conditions are contributing to 65 percent of deaths across our state.” 

Researchers have estimated that 70 percent of the determinants of health are outside the normal control of policymakers, with 40 percent attributed to personal behaviors and 30 percent attributed to genetics. Just 10 percent has been attributed to clinical care.

The working group reviewed a wide range of health data during its first meeting, particularly data compiled from the America’s Health Ranking report. Many of those figures showed a disconnect between government spending on health care and outcomes, and similar detachment between availability of care and use of services.

Oklahoma Deputy Secretary of Health Carter Kimble, one of Gov. Kevin Stitt’s appointees to the working group, noted that Oklahoma ranked 26th in public health funding, yet came in 47th out of the 50 states in health outcomes. 

While Oklahoma has improved in the rate of drug deaths (jumping to 34th), rates in other areas have shown “continued systemic” challenges, Heater said, including the rates of smoking, drinking, obesity, physical inactivity, and high-school graduation rates. Oklahoma is ranked 48th in obesity and 47th in physical inactivity. Since 1990, the obesity rate in Oklahoma has surged from less than 15 percent of adults to more than 35 percent today. One in five adult Oklahomans also smokes tobacco, which is well above the national average. 

Oklahoma’s ranking on health outcomes was often much lower than its ranking on measurements tied to health-care access. The state ranks 36th in primary care physicians and 38th in dentists. Yet Oklahoma also ranked 43rd in adult diabetes, 48th in cardiovascular deaths, 45th in cancer deaths, and 44th in premature deaths.

“What recommendations would you make to this committee for things we need to look at, things we need to talk about, that affect those three behaviors?” asked Sen. Greg McCortney, an Ada Republican who co-chaired the group. “Because that’s not Medicaid expansion. That’s something very different.”

And, while the America’s Health Ranking report pegs Oklahoma 47th out of the 50 states in its health rankings, demographically similar states that have expanded Medicaid to include able-bodied adults remain grouped alongside Oklahoma in that report. Arkansas and Kentucky were ranked 46th and 45th, respectively, while Louisiana was ranked dead last in the country behind Oklahoma. 

While some activists have suggested Medicaid expansion would significantly improve Oklahoma’s health outcomes, one committee member said the data presented suggest otherwise, and that the challenge of improving Oklahomans’ health is not nearly that simple.

“One of the takeaways I got from it was 86.1 percent of Oklahoma’s population has some form of insurance—86.1 percent has some form of insurance,” said Sen. Gary Stanislawski, R-Tulsa. “Yet we’re still ranked 47th in health rankings. Therefore to me, equating the opportunity to have health insurance and improving health outcomes, they do not correlate.”

Medicaid Expansion Is an All-or-Nothing Deal

In an effort to curb the high costs of implementing full Obamacare Medicaid expansion, states have attempted to circumvent some of Obamacare’s restrictions regarding eligibility— with no success. For example, earlier this year the Trump administration denied Utah’s request to partially expand its Medicaid program to a smaller population of able-bodied adults than what is required by law under Obamacare.[37]

Utah sought to extend Medicaid benefits to individuals whose annual earnings were at or below 100 percent of the federal poverty level. However, in order to receive the enhanced matching rate (90 percent) from the federal government for costs accrued by new able-bodied adults on Medicaid, Obamacare requires states to extend full Medicaid benefits to individuals who make up to 138 percent of the federal poverty level. Last year, the Centers for Medicare and Medicaid Services rejected a similar proposal from Arkansas to scale back Medicaid eligibility to only those who were at or below the federal poverty level.[38]

These recent failed attempts by Utah and Arkansas to sidestep statutory provisions in Obamacare serve as a warning for Oklahoma lawmakers that Medicaid expansion is indeed an all-or-nothing proposition for states. In addition to eligibility challenges, states have faced difficulties implementing any type of work requirements for able-bodied expansion enrollees. On three separate occasions U.S. District Court Judge James Boasberg has sided with progressive advocates’ groups and has struck down states’ work requirements for certain eligible beneficiaries.[39] From these recent examples, it’s clear that states have little authority over key elements of its Medicaid program. The Trump administration’s stance that Medicaid expansion is an all-or-nothing decision, which requires entangling the state with a massive expansion of welfare and greater entanglement with federal bureaucrats, is not new, as is briefly noted on page four of this report. 

The Obama administration refused to continue Insure Oklahoma and rejected attempts by lawmakers and state bureaucrats previously to pass jerry-rigged proposals that would have cut out some Oklahomans on Insure Oklahoma. These proposals’ chief aims were to secure more money for hospitals and insurance companies—which are the biggest source of the problem in overpriced health care in Oklahoma and across the nation.

Oklahoma Plan Prioritizes Able-Bodied Adults Over Truly Needy

Under the “Oklahoma Plan,” able-bodied adults would receive Medicaid benefits through commercial plans, but the mostvulnerable would continue to receive Medicaid through the bureaucrat-administered system currently at OHCA.  Due to the higher matching rate for Obamacare and because commercial plans have higher reimbursement rates than Medicaid, providers will have a perverse incentive to prioritize care for these new able-bodied adults over care for seniors, poor children, and individuals with disabilities already relying on the Medicaid safety net.

In Arkansas, for example, physician payment rates across outpatient services are 90 percent higher for able-bodied adults in commercial plans than for the truly needy on Medicaid.[40] Hospitals received payments that were 53 percent higher for enrollees in the commercial plans compared to traditional Medicaid for inpatient stays and 205 percent higher for emergency room visits.[41] As a result, Arkansas officials now report that providers are more willing to accept able-bodied adults from expansion than the truly needy enrolled in traditional Medicaid.[42]

If that weren’t bad enough, Obamacare’s funding formula creates similar incentives for state lawmakers.[43]

Currently, the federal government reimburses Oklahoma for roughly 60 percent of the cost to provide Medicaid to the truly needy.But if the state were to expand Medicaid under Obamacare, the federal government promises to pay 90 percent of the cost to provide Medicaid to this new class of able-bodied adults starting in 2020. 

When expansion costs run over budget, as they have in other states, lawmakers will be forced to find additional funding through either higher taxes or spending cuts. But, thanks to Obamacare, they will have an incentive to cut from the truly needy first—because cutting from expansion would save just 10 cents out of every dollar, while cutting from the truly needy would save nearly 40 cents on the dollar.

It would only be a matter of time before these difficult choices were thrust upon Oklahoma policymakers. Such scenarios are not farfetched in the least. Just as recently as 2016, Medicaid officials intentionally threatened to discretionarily cut funding to nursing homes in order to entice lawmakers to pass their Medicaid expansion plan in 2016.[44]

Oklahoma’s Medicaid Program Has Already Expanded

Medicaid is already one of Oklahoma’s largest and fastest-growing line items. Policymakers shouldn’t repeat past mistakes by approving yet another failed policy proposal from proponents of Obamacare Medicaid expansion.

According to OHCA data, the state’s share of Medicaid costs has skyrocketed over the last two decades, reaching $2.3 billion in 2017.[45] That’s a 329 percent increase over the $536 million in state funds Oklahoma paid in 1997.[46]

Much of this growth is the result of ever-increasing enrollment. In 2017, more than 1 million Oklahomans were dependent on Medicaid, up 132 percent from two decades earlier.[47] This massive growth coincided with total population growth of just 17percent in Oklahoma, while state residents saw significant gains in income and improvement in other economic measures from 1998 to 2017 (personal income growth of 51 percent, per capita income growth of 31 percent).[48] For comparison, K-12 enrollment grew by 11 percent during this period.[49]

Over the last 20 years the federal share of Medicaid costs has declined by more than eight percentage points.[50]  Every percentage point drop in federal support means another $54 million in extra costs to state taxpayers.[51]

Some expansion proponents claim Oklahoma should accept the “generous” federal reimbursements for new enrollees by expanding Medicaid. But there is no “generous” pot of money from which the federal government covers new Medicaid expansion costs.[52] Federal spending on Medicaid is based on the costs associated with each current enrollee. If Oklahoma expanded Medicaid, it would mean more state and federal spending, which would increase the national debt and further strain funding for other core government services and resources. 

Ballooning enrollment in Oklahoma’s Medicaid program is already crowding out resources for the most vulnerable, as well asother critical state priorities. Adding hundreds of thousands of able-bodied adults to the program will only make these problems worse, creating a direct fiscal threat not only to the truly needy, but to taxpayers as well.

Oklahoma Should Continue to Reject Obamacare and Pursue Real Reforms

Instead of expanding welfare to a new class of able-bodied adults, policymakers should refocus their efforts on improving the program for those it was meant to serve: the truly needy. Lawmakers have a number of policy tools at their disposal to improve Medicaid, and none of them require implementing Obamacare Medicaid expansion and adding hundreds of thousands of able-bodied dependents onto welfare. For example, lawmakers could:

Oklahoma policymakers have wisely rejected repeated attempts to expand Obamacare in the Sooner State. Implementing SB 605, the “Oklahoma Plan,” or any other iteration of Obamacare Medicaid expansion would put the truly needy in danger and usher in further perpetual budget crises.