States Are Waking Up to the Medicaid Expansion Trap
On March 14, Mississippi State Senators stopped Medicaid Expansion by delaying the vote and letting the bill die in committee. Mississippi is one of ten holdout states that has not expanded Medicaid. They made the right decision.
A decade ago, Medicaid expansion was promised as a “free lunch.” Instead, the expansion resulted in massive strains on federal and state budgets and no improvements in the quality of healthcare. Both Indiana and New York expanded Medicaid a decade ago and are struggling to fund it.
In Indiana, an April 2023 forecasting error resulted in a massive Medicaid shortfall. What was expected to be a $570 million surplus was, in fact, a $1 billion deficit. The faults of the April forecast came from using older 2023 data as well as unanticipated demand for various forms of long-term care like nursing homes, at-home disability care, and assisted living facilities. Legislators in Indianapolis have withdrawn $271 million in state reserves and considered altering funding for long-term care to make up for the budget shortfall.
New York, a state known for large contributions to Medicaid, has its own budget woes with the program. New York contributed $29.6 billion (just over $1,500 per New York resident) of state tax dollars to Medicaid in FY 2022, second only to California. Research shows that New York is also the state with the highest per capita spending on Medicaid and medical care generally. For all its public healthcare spending, hospitals in the Empire State rate poorly, frequently below average for hospital quality, and among the worst states for hospital safety.
Medicaid made up 10% ($607.7 billion) of the 2023 federal budget, funding, on average, 71.3% of traditional Medicaid and 90% of the Medicaid Expansion created under the Affordable Care Act (ACA). This means the federal government provides more generous support to able-bodied adults covered under the expansion than to those who are most vulnerable and in the greatest need of care.
As the federal budget is strained by debt and interest payments, Washington will cut funding to the states, expect state leaders to deal with the funding issues, and let them take the blame for the inevitable spending cuts. This process has already begun.
The bonus federal payments of 6.1% offered under the CARES Act expired December 31, 2023. At the end of March, federal funds to hospitals will begin to be cut and the hatchet will continue to swing thru FY 2027. Research shows that this will be a massive hit to state budgets, especially the ten remaining states that have not expanded Medicaid. That pressure pushed voters in South Dakota to approve expansion in 2022.
DC does not have the money to keep throwing at Medicaid. Fortunately, solutions are available. One important provision is including work requirements to receive Medicaid. State Senators in Mississippi delayed Medicaid expansion precisely because an agreement could not be reached on work requirements.
On X (formerly Twitter), Mississippi Governor Tate Reeves stated, “I also appreciate Senate leadership for not rushing head first into expansion. Recognizing the need for a true work requirement is a good first step!”
There are also other possible fixes. The federal government should stop giving more generous support to Medicaid expansion than traditional Medicaid, cut red tape, and allow states the flexibility to provide innovative healthcare solutions to enrollees. And, certainly, the federal government should limit Medicaid to low-income Americans.
Research shows, though, that the best way to improve Medicaid solvency is to reduce improper payments. Since Medicaid was expanded under the ACA, improper payments have skyrocketed. Able-bodied adults on Medicaid should be empowered to move off the dole and into private health coverage.
Ultimately, solutions require the necessary political will to achieve them. Unfortunately, the political will to cut spending rapidly evaporates when spending cuts threaten politicians, especially in an election year. Eventually, they will no longer be able to ignore the problem. Solutions are available, but time to solve the problem before a crisis happens is rapidly running out.
