PENROSE POLICY: The Illusion of Sustainable Medicaid Expansion

We met as a Republican Caucus recently to discuss the new Utah Access Plus plan to expand Medicaid in the state.  With a gap existing in current Medicaid coverage, the Legislature has been toiling for years now to find an affordable and sustainable path to provide medical coverage for those living in the gap.

The gap mainly consists of single adults without children who live under 138% of the Federal Poverty Level.  There are approximately 130,000 living in Utah without any form of insurance coverage in this gap currently.

In the 2015 General Session, a plan was proposed to use state tax revenue to pay for expanding Medicaid to cover these folks.  It was called Healthy Utah and was estimated to cost $78 Million to fund.  The House was very uncomfortable with aspects of this plan and proposed its own $40 Million version called Utah Cares.  Healthy Utah failed in the House and Utah Cares failed in the Senate.  The stalemate left the Governor, House Leadership, and Senate Leadership staring at each other and scratching their head.  They went to work on a compromise and thus Utah Access Plus was born.

The main disagreement between parties on the other plans had largely to do with funding.  The questions arose about how much, for how long and from whom?  The unified message the legsslature heard from the medical industry who supported Healthy Utah was that the math was simple:  Utah would get $9 in Federal tax money to pay for medical services for every $1 in Utah tax money we contributed.  In their eyes, we were being foolish to turn down such a sweet deal.  Obviously, they were biased because they would be the ones directly profiting from the infusion of Federal tax money.

So, House leadership begged the question:  Why should Utah taxpayers be on the hook for funds that allow medical providers to profit substantially from federal tax dollars?  Why don't medical providers contribute $1 and get $9. If the math is really as simple as it was being claimed, certainly the medical industry would clamor at the opportunity to reap that windfall profit at such little expense.

Speaker Greg Hughes listens to a wheelchair-bound professional protester from Texas who interrupted a closed Republican Caucus meeting September 29, 2015

Well, Utah Access Plus proposed to fund Medicaid Expansion under those terms.  The medical industry would contribute $1 and get $9 back...or so it seemed.  Interestingly, as soon as this proposal manifested itself, the medical industry immediately changed its tune.  Suddenly, the $1 burden was simply too onerous to countenance and the Legislature was flooded with complaints from doctors and hospital administrators claiming the proposal was to risky and expensive.

Thus, we see a remarkable example of how moral hazard is created by the promise of getting other people's money with no personal risk or responsibility.  In this case, the medical industry wanted all the profits for themselves and all the responsibility with the taxpayer.  Who can blame them?  It makes for great business.  But, such policy is ultimately unfair and reckless.

So, this backstory brings us to today's vote on Utah Access Plus.    I hope to articulate some of the details faced by the Legislature in dealing with this problem.

"Mother, May I" Politics

Medicaid expansion has happened in many other states.  Utah has looked around and recognized that there are things we could do that would work in our state.  There are best practices out there that make expansion feasible.  However, the Federal government has seen to it that our ability to implement those are restricted.  Utah has had to negotiate long and hard to get the Federal government to verbally agree to waivers of existing law in order to accommodate some sort of expansion.  Unfortunately, all the best ideas are prohibited.  Why?  According to the National Director of Health and Human Services, "It's not the President's policy."  At the Federal level, Medicaid expansion is seen as more of a political policy than it is a pragmatic and workable one.  Let's also keep in mind that the folks we have been negotiating with in Washington D.C. will only be there for another 18 months or so.  They don't have much skin in the game.  They will be gone but we will still be here 10 years from now wondering what happened.    

Cost Shift/Crowd Out

Medicaid brings with it a whole host of economic distortions.  If a doctor bills your insurance $100, under his agreement with your insurance he will be paid $100.  However, under Medicaid, your doctor is only paid $80 for the same bill.  Your doctor has to live with the $20 loss.  Since we live in a free country (for now) many doctors simply opt not to serve folks who are on Medicaid.  It simply doesn't pay to serve them when there are other full paying customers out there.  So, while it sounds great to offer Medicaid and tell a bunch of people they now have health coverage, the reality is that there won't be enough doctors out there to serve their needs.  Also, the expansion population may also get put in front of existing Medicaid enrollees when it comes to service.  This may unfairly bump those in need to the back of the line due to bureaucratic whim.  Combined, these conditions make the Medicaid coverage promise a promise of false hope for many.

The other issue is that the doctors who do end up servicing Medicaid patients may make up for the short fall by charging their full paying customers for the difference.  We call this process cost shifting.  Under Medicaid expansion, regular customers will pay higher fees for service to make up for the losses that doctors incur by choosing to service an expanding pool of Medicaid patients.  There really is no free lunch.

How Much? How Long? And From Whom?

The giant wild card in the Medicaid expansion debate is related to who pays what.  The Federal government has "promised" Utah that it will cover 90% of the costs if we will just contribube 10%.  In this case, our 10% contribution would mean supposedly $78 Million.  If the state didn't raise taxes or charge the medical industry for this, where does the money come from?  Well, it would come from cuts in higher education and pre-existing health and human service programs at the state level.  Services would have to be cut somewhere to pay for Medicaid expansion.

Of course, this is assuming that the $78 Million projected figure is correct.  In most other states, the estimates for costs have been woefully inadequate and the figures have been much higher than anticipated.  Medicaid expansion is in effect writing a blank check.  Once implemented, the state has no control over the costs.  It is obligated to pay for whatever happens, whether its affordable or not.

The other assumption is that the Federal government will honor its "promise" to pay for 90% of the costs of the program.  Of course, when our state leaders went to Washington D.C. to discuss this issue, they discovered that members of Congress are talking about reducing the Federal portion to just 70%.  That would mean that Utah's obligation would triple to $240 Million overnight if that change were to occur.  Uh oh!  It is pretty difficult to commit to massive once-in-a-lifetime social entitlement programs when the funds are not guaranteed to be there the next year.  With as precarious as our levels of national debt are right now, it would seem short sighted to believe that the payment obligations promised today would be maintained in the event of national fiscal hardship.  Some may say that the payments would be made, which indeed they might, but they would be payments manufactured at the Treasury's printing press.  Contributions may stay the same as costs rise due to inflation.  Everyone would feel the deprivation this causes even if the money flowed as "promised".
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In the end, the proposal was voted on by the Republican Caucus and received only 7 votes in favor and 56 against.  I voted against the proposal. It is my view that the solutions to the Medicaid coverage gap are elusive at best and Medicaid expansion in general is a flawed idea.  The market mechanisms that promote innovation, technological progress, and price discovery are missing in the medical market.  Government insurance mandates now cloud the freedom of choice that allows for competition and price reductions that benefit consumers.  The Affordable Care Act has done nothing to decrease the cost of healthcare.  In fact, it has done the opposite by injecting billions of dollars arbitrarily into the insurance markets.  This money infusion has distorted even further the true cost of healthcare.

One man's waste is another man's profit.  In light of our vote on Utah Access Plus, I look forward to discussing solutions that limit taxpayer exposure, contribute to a real reduction in cost of healthcare services,  and  promote free choice and price discovery in the medical services market.  Meanwhile, it behooves us to cease chasing the illusion of sustainable Medicaid expansion in Utah.