Rejecting Medicaid Expansion: There Is No Alternative. A policy white paper

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1 Rejecting Medicaid Expansion: There Is No Alternative A policy white paper Texas Conservative Coalition Research Institute March 2013

2 For more information about any of the recommendations contained in this document, please contact the Texas Conservative Coalition Research Institute: Texas Conservative Coalition Research Institute P.O. Box 2659, Austin, TX (512) The contents of this document do not represent an endorsement from any individual member of the Texas Conservative Coalition Research Institute Board of Directors. There may be some policy recommendations or statements of philosophy that individual members are unable to support. We recognize and respect their position and greatly appreciate the work of everyone involved in the organization. Copyright 2013 Texas Conservative Coalition Research Institute, all rights reserved. 2 Rejecting Medicaid Expansion Texas Conservative Coalition Research Institute

3 Rejecting Medicaid Expansion: There Is No Alternative Executive Summary In spite of the growing number of Republican Governors who have indicated that they will accept the Medicaid expansion, a central feature of the Patient Protection and Affordable Care (PPACA), the Texas Legislature must continue to resist the expansion. Fundamentally, expanding the Medicaid program is the wrong choice for Texas. Welfare spending in Texas is already beginning to crowd out spending on the state s core responsibilities, such as public education and transportation infrastructure. At the same time, the promise of federal matching funds that have made the expansion apparently irresistible to many other states is a hollow one: the federal government cannot afford the future cost of its entitlement programs without adding further to the nation s $16 trillion of debt. It is short- sighted and irresponsible for states to expand their Medicaid programs knowing the dire fiscal straits in which the nation finds itself, especially when history has shown that expanding Medicaid rolls has no impact on the uninsured rate and forces more people into a program that reimburses providers at below market rates. This paper lays out six arguments against the expansion of Texas Medicaid program: 1. Expanding Medicaid eligibility is the same failed path that has been followed in the past. 2. Federal matching funds will yield diminishing returns to the state. 3. Even with federal matching funds, Texas cannot afford to expand its Medicaid program. 4. States lack meaningful flexibility to operate their Medicaid programs and there is no concrete evidence of such flexibility from the Administration. 5. Expanding Medicaid has no impact on the uninsured rate. 6. Medicaid expansion will exacerbate low reimbursements to participating health care providers. There is no alternative to rejecting the Medicaid expansion proposed by PPACA. For Texas to expand its Medicaid program would be to accept the Obama Administration s assumption about entitlements and social welfare, that expanded government is the answer to the problems facing the nation. Texas must continue to set itself apart from the rest of the nation, charting a path of limited government, individual freedom, and personal responsibility in the knowledge that a free and successful private sector is the best path to the kind of economic prosperity in which Texans can have access to affordable health care. Texas Conservative Coalition Research Institute There Is No Alternative 3

4 Introduction The Legislature is under increasing pressure to expand the Medicaid rolls. At stake is an estimated $24 billion dollars in federal matching funds between , with an additional $1.3 billion in state revenue required. Between 1.3 and 1.8 million additional Texans would be eligible for Medicaid under this expansion. This expansion was made voluntary by the Supreme Court ruling last year that upheld the Patient Protection and Affordable Care Act (PPACA) and its individual mandate, but struck down the mandatory expansion of state Medicaid programs. Contrary to earlier opposition, a handful of Republican Governors have now agreed to accept federal dollars to expand their Medicaid programs Gov. John Kasich (OH), Gov. Jan Brewer (AZ), Gov, Jack Dalrymple (ND), Gov. Susana Martinez (NM), Gov. Brian Sandoval (NV), and most recently Gov. Rick Scott (FL), and Gov. Chris Christie (NJ). As the last big- state holdout, pressure continues to mount on Texas Legislators and the Governor. Texas, however, must resist this pressure. There are at least six reasons why expansion of the Medicaid program must be rejected: 1. Expanding Medicaid eligibility is the same failed path that has been followed in the past. The chart below illustrates Texas Medicaid, TANF, and CHIP population growth since Eligibility expansions in 1986, 1991, and 2000 would simply be repeated if Texas accepts the expansion proposed by PPACA: Source: Texas Health and Human Services Commission. 4 Rejecting Medicaid Expansion Texas Conservative Coalition Research Institute

5 As the chart shows, a decade ago there were around 2.5 million Texans reliant on these programs. If Texas accepts the eligibility expansion, the Health and Human Services Commission (HHSC) projects that around 5 million Texans will rely on these programs by This trend of expanding welfare programs is both unacceptable and unaffordable, and must be rejected. Indeed, if Texas continues to expand enrollment and hence the cost of its welfare programs, it will continue to crowd out spending on the state s core responsibilities. As the table below shows, in 1989 spending on Health and Human Services (HHS) programs stood at just $4.6 billion, which represented 22.2 percent of the entire annual state budget. In the same year, transportation funding was $2.5 billion or 12.3 percent of the entire state budget. Over the subsequent two decades both HHS and transportation spending have grown, though at markedly different rates. HHS spending has grown more than sevenfold and now accounts for a much higher percentage of the total state budget (37.8 percent). Transportation spending, however, is only a little more than two and a half times larger than it was in 1989, and it now accounts for a much smaller proportion of the state budget (just 7.6 percent): Health and Human Services Transportation Total Funding % of State Budget Total Funding % of State Budget 1989 $4.6 billion 22.2 percent $2.5 billion 12.3 percent 1999 $16.0 billion 35.1 percent $3.7 billion 8.1 percent 2009 $33.5 billion 37.8 percent $6.7 billion 7.6 percent Acceding to the Medicaid expansion proposed by President Obama and passed by a Democratic Congress will only exacerbate this problem, laying the groundwork for state tax increases in the future in order to fund the expanded Medicaid program and the state s core responsibilities, such as transportation infrastructure. 2. Federal matching funds will yield diminishing returns to the state. The vast majority of the Republican Governors who have accepted Medicaid expansion were enticed to some extent by new and significant federal dollars. The federal government is promising to cover the entire cost of expanding Medicaid for the first three years, and up to 90 percent after This short- term influx of funds is always tempting but is especially so during times of continued recession, high employment, and swelling Medicaid budgets that are crowding out other state priorities. The history of Texas' federal Medicaid matching rate, as illustrated below, suggests that the state should expect any Medicaid matching funds associated with the eligibility expansion proposed by PPACA to drop significantly below 90 percent in the out years. Texas Conservative Coalition Research Institute There Is No Alternative 5

6 66 Texas' Federal Medicaid Matching Rate, Federal Medicaid Match (%) Source: US HHS, Assistant Secretary for Planning & EvaluaMon. fmfy88 fmfy89 fmfy90 fmfy91 fmfy92 fmfy93 fmfy94 fmfy95 fmfy96 fmfy97 fmfy98 fmfy99 fmfy00 fy01 fy02 fy03 fy04 fy05 fy06 fy07 fy08 fy09 fy10 fy11 Put simply, the federal government is making a promise that neither it nor the state cannot afford. Amid the national debate surrounding sequestration, spending, and debt, it is highly unlikely that the federal government will be able to deliver on the matching funds that it is promising over the long term; and perhaps not even the short term. Any serious efforts in Washington to resolve the spending and debt crisis must involve entitlement programs, including Medicaid and the expansion called for by PPACA. Serious cuts to the program will have to be on the table, and reform to Medicaid financing has been overdue for decades. Also, there is simply no way to pay for this expansion without contributing to the $16 trillion national debt. Without federal funding, states could be forced to rollback expansion or fund the expansion itself. However, history shows that once a program has been created or expanded, it is extremely difficult to cut back in the future. 3. Even with diminishing federal matching funds, Texas cannot afford to expand its Medicaid program. In Texas, Medicaid currently assumes around 25 percent of the state budget, and enrollment and costs of the program are consistently rising. Even without the PPACA Medicaid expansion, HHSC projects that Medicaid will account for 37 percent of Texas All Funds budget by The following chart illustrates absolute annual federal and state Medicaid spending since 1981, and highlights the growth of Medicaid as a percentage of the total state budget since Rejecting Medicaid Expansion Texas Conservative Coalition Research Institute

7 Texas Medicaid Spending (% of state budget) 2001: 14.0% 2011: 20.2% 2023: 37.2% Expanding Medicaid necessarily crowds out spending on core state responsibilities such as public education and infrastructure. Article VII, Section 1 of the Texas Constitution requires the Legislature to make suitable provision for the support and maintenance of an efficient system of public free schools. If the state is to be able to fulfill this constitutional requirement, it is essential that welfare programs such as Medicaid are not expanded the projected growth in Medicaid costs even under current program rules is excessive and strains funding. 4. States lack flexibility to operate their Medicaid programs. A popular argument made in support of expansion is the notion that states will be able to use this new influx of federal money to initiate reforms to their Medicaid programs. This seems to be the case with Florida Governor Rick Scott s decision to participate in the expansion. i His plan includes enrolling all new Medicaid recipients into private managed- care plans. However, history demonstrates that the federal government is reluctant to give genuine flexibility, especially in light of the success of welfare reform. Federal waivers for state Medicaid programs are difficult to come by. Indeed, even Governor Jerry Brown (D- CA) was refused a cost- saving Medicaid flexibility waiver in 2011 by Health and Human Services Secretary Kathleen Sebelius. ii Texas had been denied multiple requests waivers for Medicaid reform under the Bush Administration as well the Obama Administration. Indeed, a waiver requested under Senate Bill 10 (80R), which was enacted by the Texas Legislature in 2007, has still not received federal approval. SB 10 proposed multiple reforms to Texas Medicaid program, including personal responsibility agreements, a healthy lifestyles program, a health savings account program, as well as a tailored benefits package. These are Texas Conservative Coalition Research Institute There Is No Alternative 7

8 the types of proposals that will ultimately reform Medicaid into a sustainable program in which there is a recognition that access to taxpayer- funded health care demands that recipients do all they can to adopt healthy lifestyles. Fundamentally, there is scant evidence that the federal government would permit states the type of flexibility necessary to control costs within the confines of state budget demands while meeting the needs of the disparate populations served by Medicaid in the states. 5. Expanding Medicaid has no impact on the uninsured rate. Another faulty argument often made in favor of expanding Medicaid is that it helps address the problems of the millions of uninsured. Texas has one of the highest rates of uninsured in the nation, currently estimated at around 6 million. iii Proponents claim that the expansion would cut Texas uninsured rate in half. However, this is a false argument. Medicaid is not insurance. It is an entitlement program that provides access to care. A glance at Texas HHS spending and the state s uninsured rate over the past three decades underscores this point: TX Health and Human Services Spending & the Uninsured Rate Year HHS Spending Uninsured Rate 2008 $29.7 billion 24.1 percent 1998 $14.7 billion 24.5 percent 1988 $4.1 billion 23.7 percent Addressing the problem of the uninsured is a wholly different issue: there are a variety of different options to address the problem including vouchers or tax credits that allow individuals to purchase an insurance plan of their choice and continuing to foster a system of employer- provided insurance. Pushing the uninsured into an ever- growing and costly entitlement program is something altogether different. Simply, Medicaid expansion will not lower the rate of the uninsured, and failing to do so, it will be used as justification for yet another expansion in the future. In fact, the Legislature should require HHSC and the Department of Insurance to catalogue all the existing programs that provide taxpayer- subsidized access to health care and insurance. That report could help transform the debate about the uninsured into a sobering reminder of the vast network of access points that taxpayers currently subsidize. 8 Rejecting Medicaid Expansion Texas Conservative Coalition Research Institute

9 6. Medicaid expansion will exacerbate low reimbursements to participating health care providers. In order to pay for previous expansions of Medicaid eligibility, reimbursement rates to doctors who see Medicaid patients have been cut so low than many physicians now refuse to participate in the program. Adding over a million people to the shrinking provider network will only exacerbate this problem. In fact, the Obama Administration recently told states that they could cut Medicaid payments to doctors and health care providers to help control costs in the program. iv As John Goodman noted in The Wall Street Journal: When demand exceeds supply, doctors have a great deal of flexibility about who they see and when they see them. Not surprisingly, they tend to see those patients first who pay the highest fees As physicians increasingly have to allocate their time, patients in plans that pay below- market prices will likely wait longest. Those patients will be the elderly and the disabled on Medicare, [and] low- income families on Medicaid. v The Medicaid program consistently promises more than it delivers. As physicians are paid less to see Medicaid patients and fewer accept Medicaid patients at all, the quality of care is diminished and access becomes more limited. In fact, Medicaid patients use emergency rooms at double the rate of Medicare patients and the uninsured, and four times the rate of those with private insurance. vi Other studies show that Medicaid enrollees have worse health outcomes than those on private insurance or even those without health insurance. vii Forcing more people many of whom are employed into a declining program with low reimbursement rates and poor health outcomes is not in the best interests of patients or taxpayers. Conclusion Republican Governors across the country have mistakenly fallen for the allure of federal money, which erodes state authority and exacerbates state budgeting. Governor Perry is right to stand firm in his opposition to Medicaid expansion, claiming it s moving our state towards bankruptcy. viii Legislators must continue to oppose it, as some have done publicly. ix Expanding Medicaid is a path that has been taken before. It is a fiscally unsustainable path that demonstrably does not impact the uninsured rate. The apparent availability of federal matching funds is a hollow promise to which the state should not subject itself. Every advocate of expansion is an advocate for increasing the national debt because expansion is not paid for in any meaningful sense, and will only add to the nation s crushing debt. A more prudent path is to reject the Medicaid expansion and to continue to pursue innovations such as managed care within the existing Medicaid program, and focus on job creation, which is the most meaningful path to affordable health care. Texas Conservative Coalition Research Institute There Is No Alternative 9

10 ENDNOTES i Rick Scott s Negotiated Surrender on Medicaid, MSNBC, February 21, ii Jerry Brown s Medicaid Blues, The Wall Street Journal, March 2, iii Texas Still Leads Nation in Rate of Uninsured, Dallas Business Journal, September 13, iv New York Times, States Can Cut Back on Medicaid Payments, Administration Says, by Robert Pear. February 25, v John C. Goodman, Why the Doctor Can t See You, The Wall Street Journal, August 14, vi The Heritage Foundation, State Medicaid Expansion Represents Bad Welfare and Health Policy, by Edmund Haislmaier, February 19, vii San Antonio Express News, Billions Ride on Medicaid Debate, by Melissa Fletch Stoeltje, February 24, viii Office of Governor Perry, press release. ix Senator Bob Deuell, Representative Charles Schwertner, Representative Mark Shelton, and Representative John Zerwas, Passing on Medicaid expansion is the right call for Texas, Houston Chronicle, July 13, Rejecting Medicaid Expansion Texas Conservative Coalition Research Institute