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Economic Benefits of Medicaid Expansion

May 22, 2020

The goal of the Patient Protection and Affordable Care Act (ACA) is to improve the health of Americans. A major objective of the legislation is to increase access to health care by making affordable insurance universally available. Expanding Medicaid to include childless adults with family incomes at or below 138% Federal Poverty Level was included in the original legislation but was made optional by the Supreme Court. In 2011 the federal government began collecting tax dollars from every state, including Florida, to make insurance available to Americans who otherwise could not afford it.  The billions of dollars being collected by the federal government to help our citizens enroll in Medicaid are not being spent on Floridians.

In 2013 hospitals and other business groups mounted a major campaign to convince the legislature to agree to expand Medicaid. The Mt. Sinai Medical Center CEO said “refusing the available money makes no sense, either from a wellness perspective or an economic development perspective……This is a great opportunity to cover more people…. we have support from the executive branch and what we believe is support in the Senate”. The Florida Chamber of Commerce described covering costs of the uninsured as “$1.4 billion hidden tax forced onto families and job creators” (Ousley). The  Affiliated Industries of Florida said “…Governor Scott announced he supports accepting Federal Funding to expand Medicaid to help cover uninsured Floridians…..AIF will encourage the legislature to best utilize federal funds to provide coverage to more Floridians….The CEO of AIF stated “Governor Scott has proposed an option to relieve the double taxation on Florida’s employers, while providing coverage for more of our state’s uninsured.” (AFI)

Ultimately the Senate voted to accept federal funds to provide medical care to needy adults but the  House of Representatives voted against it. This means that our citizens are paying for health care for over 700,000 Floridians who are not receiving it.  Although no convincing rationale has been offered Florida’s legislature continues to refuse accept funding for Medicaid expansion.

The ACA has been in place long enough that data are now available to show ACA, including Medicaid expansion, results in increased numbers of insured, greater use of health care and improved health. (Antonisse) Available data suggest the failure to accept Medicaid expansion leads to a loss of state, community and individual benefits as described below.

Individuals

Financial Status

Research suggests enrolling in Medicaid results in improved financial status. A comparison of Medicaid expansion enrollees in Arkansas to similar families in Kentucky, a non-expansion state, found Medicaid enrollees spent less on health care. Families with out-of-pocket expenses in Arkansas spent $754 per year less than those in Kentucky. The analysis showed “the average newly enrolled Medicaid family saved at least $3000 annually compared to what they would have spent without Medicaid”. (Glied). Oregon expanded Medicaid to some but not all adults which provided the opportunity to compare those enrolled to those who did not. The comparison found that, even in the first post expansion year, enrollees were 40% less likely to borrow money or miss other payments because of medical bills. Families enrolled in Medicaid were also 25% less likely to have medical bills submitted to collection agencies.  (Baicker and Finkelstein). Over half (56%) of Ohio residents who enrolled in expanded Medicaid reported they had medical debt before enrolling which was reduced to 31% after enrollment. This reduction in medical debt resulted in making it easier for families to buy food (59%), pay the rent/mortgage (48%) and pay other debts (44%).  (Ohio)

Using enrollment and state consumer credit data in a nationally representative comparison also demonstrated Medicaid expansion decreased medical debt. Enrollment decreased newly accrued medical debt by 30-40% with the highest decrease among those with the most debt. People who had been “treated” (not defined by authors) had $900 less annual accrued medical debt. There were fewer bankruptcies in the two years following expansion.  The researchers also found enrollees were able to improve their credit scores. Subsequently they received offers of credit with reduced interest rates, representing an additional financial improvement. (Brevoort).

During the 1990s states expanded Medicaid for children and their caretakers. The variation in the extent of expansions provided an opportunity to further evaluate the relationship of Medicaid expansion to fiscal health. This multi-state study found that a 10 percentage-point increase in the percent of low-income individuals enrolled in Medicaid expansion reduced personal bankruptcies by 8%. The authors speculated that improving the rate of repayment to community creditors could ultimately result in reduced rates for other borrowers. (Gross)

Scholars at UCLA conducted an interesting study on Medicaid expansion.  Apparently the literature demonstrates that “better health and financial security, have been associated with an increased likelihood in volunteering”. The research used the incidence of volunteering as a marker of physical and financial health and saw a positive correlation between Medicaid expansion volunteering. (Heeju and Sohn)

Employment

Michigan expanded Medicaid. The enrolled population was predominantly (74%) under 50 years old, most (80%) had incomes below 100% of poverty, almost half (49%) were employed, the majority (69%) had one or more chronic health condition, and, 43% had some physical or mental health limitation. After enrollment, almost 70% of employed beneficiaries reported they were able perform better at work and those out of work reported they were better able to look for work. Among those who changed jobs 37% reported getting a better job. The authors observed the report of work related improvements  “were more likely among enrollees who reported improved health, particularly for older enrollees and those with chronic conditions”. (Tipirnene)

Similar results were found in Ohio where the Medicaid program reported 43% of enrollees were employed and a majority of enrollees reported that Medicaid made it easier to find and keep employment. Among those who were employed over half  (52%) reported having Medicaid made it easier to continue working, and 75% of those who were unemployed and seeking employment reported that having Medicaid coverage made it easier to look for work. (Ohio)

HOSPITALS

Hospitals have to accept anyone who asks for care and are sometimes referred to as the “insurer of last resort”. Uninsured hospital patients usually result in uncompensated care which will affect a hospital’s fiscal health.  Since hospital payments represent a substantial portion of the cost of insurance, decreasing the number of uninsured using hospital care should have a moderating affect on the cost of insurance. Since the cost of health care and, therefore, insurance is not likely to decrease, improvement would be represented by a reduction in the rate of increase. Data support this supposition.  “The year after ACA was signed into law premiums provided by employers for single coverage rose 18.5%…….(which) is lower than the 25.4% increase in …premiums for the five year period proceeding….”  (Ho) 

The cost of health insurance is a complex issue and not easily studied. There are multiple insurers and each may offer many plans with different benefits, payment options and networks. These and other factors such as covered population, benefits, region of the country and stockholder expectations will affect the costs.  Data on employer costs are available but information on cost through the individual market is scant. The overlap of the populations receiving subsidized coverage in the ACA Marketplace and through Medicaid provided an opportunity to study the effect of expansion on the price of premiums. A national comparison of states which did and did not expand Medicaid found the cost of premiums in expansion states was about 7% lower than the non-expansion states. (Sen and DeLeire)

Uncompensated care is critical to the discussion of care for low-income populations.  Uncompensated care is not generally distributed equitably among hospitals but in urban areas tends to be concentrated at “safety net hospitals”. Hospitals in rural areas generally have a higher percentage of uninsured patients so are also sensitive to the effect of uncompensated care on financial sustainability. The economic underpinning of the ACA included reducing Medicare and direct Medicaid payments (UPL/LIP) to hospitals with the expectation that the increase in paying patients would balance the short fall from these cuts. Reductions were made assuming that mandated coverage, fully subsidized Medicaid coverage of those below 138% of poverty as well as partially subsidized Marketplace premiums would result in almost full insurance coverage of hospital care.

 Florida refuses to expand Medicaid and the current administration in Washington has eliminated the mandate, reduced funds for Marketplace outreach and is establishing policies to make non-ACA compliant plans more available. These decisions have and will increase the number of uninsured and underinsured. With decreased access to primary care the number of uninsured who need hospital services will increase. These factors make the issue of uncompensated hospital care essential to this discussion.

As hospitals lose revenue they need to cut operating costs, which eventually may affect quality of care. A study reviewed the effect of reduction of Medicare payment to hospitals due to the Balanced Budget Act and found a relationship between reduced payments and health outcomes. Comparing 30-day post discharge mortality found an inverse correlated between the profitability of the hospital cost center and mortality. (Lindrooth 2013). A national study of safety net hospitals found those with the highest burden of charges for uninsured or underinsured had higher rates of mortality and readmission than those with better financial status. (Hoehn)  A study of Florida Hospitals looked at the relationship of financial pressure and patient safety (e.g., medical errors) for major surgeries. Results show an inverse relationship between patient safety events and hospital profit margins. (Encinosa)

Continued financial losses will eventually result in hospital closure. In a study, non-federal short-term general and critical care hospitals in states that expanded Medicaid were compared to hospitals in states that did not. Between 2012-2013 the rate of hospital closures doubled in states that did not expand Medicaid and decreased by half in states that expanded Medicaid. After 2014 the closure rate did not change in expansion states and continued to climb in non-expansion states. The rate of closure was affected by the number of uninsured adults with the rate of closure being positively correlated with the percent of uninsured. When the percent of uninsured in the county was less than 10% the closure rate was unaffected by Medicaid expansion. (Lindrooth 2018). Closure of teaching hospitals would shift uncompensated care to other hospitals, limit education of medical professionals and reduce the amount of tertiary and quaternary medical care available.

STATE

Multiple studies of Medicaid expansion demonstrate financial benefits to states (Antonisse). The increased revenues come from reduced spending on services previously provided through state funds that are subsequently covered by Medicaid e.g. mental health; transferring adults currently enrolled in Medicaid to expanded Medicaid1, economic benefits from the infusion of federal dollars providing well paying jobs, and; money previously spent on health care by the previously uninsured can be spent on other goods and services which are taxed and stimulate jobs.

When the Michigan legislature approved Medicaid expansion in 2013, it did so with the condition that the state would achieve enough revenue to offset the costs of expansion. In the early years the federal government paid 100% of costs which decreased to 95% in 2017 and will decrease to 90% in 2020. The state has enrolled about 600,000in expanded Medicaid. Projections for 2020 when the match rate falls to it’s lowest rate of 90% of payment, the state is still expected to have 214.6 million dollars more than if Medicaid was not expanded. Michigan’s increased revenue will come from contributions from providers and health plans, improved payment rate for enrolled beneficiaries, state taxes and reduced spending on health services that the state had provided in the past. In 2020 the state expects to have almost 32 thousand more jobs and an increase in personal income of over $2.3 billion. Although Florida has no state tax, the newly enrolled population would be similar to Michigan and the financial benefit to Michigan without state income tax would be 64.2 million dollars. (Ayanian)

SUMMARY

Medicaid expansion offers multiple financial benefits for enrollees and the state.

Enrollees

  • Have less medical debt and are better able to afford food and other essential goods and services
  • Have better credit and lower interest rates on borrowed money
  • Are less likely to declare bankruptcy
  • Have better work performance
  • If unemployed are better able to look for work

Hospitals

  • Are more sustainable
  • Able to maintain quality care
  • Less likely to close

States

  • Have increased revenues from reduced funding for health related services
  • Benefit from higher reimbursement rate for adults currently covered by regular Medicaid  
  • Experience increased employment
  • Have increased economic activity

ADDENDUM

This paper is a review of some of the rigorously conducted studies evaluating the financial impact of Medicaid expansion. This addendum is added to call attention to a recent report which, although not a scientific study, offers relevant and timely observations. It also serves to put Medicaid expansion into context.

 It is important to remember that Medicaid expansion is only one component of the ACA, which was developed as a comprehensive plan to improve health of Americans. The core of the ACA is an emphasis on health promotion and prevention, including substituting inexpensive primary care for expensive hospital services. 

Historically the rate of health spending has grown faster than the rest of the economy. (Kamal) A recently published report of health care spending and utilization in the U.S. shows a “surge” in health care utilization in 2014-15, which could be due to the “pent up need” of newly insured adults. The report cites data to show between 2016 and January 2019 health care spending grew more slowly than the rest of the economy. During this time the greatest growth in health spending was in nursing home care and the lowest rate of growth in spending is in hospital care. (Altarum-Spending) Since hospital costs account for about one third of health spending it has an outsized contribution to the overall rate of growth.  One of the main reasons health care spending decreased is a lower rate of utilization of hospital services. (Altarum-Price). Even though the rate of health spending decreased more jobs were added in the first quarter of 2019 than in any quarter in the 30 years the Center has been tracking data. Between March 2018 and March 2019 jobs in health care grew by 2.5% where as non-health care jobs increased by 1.6%. (Altarum-Labor) The decrease in health care spending and reduced use of hospital services is consistent with the goal of better health and less use of expensive care. In spite of the reduction in health spending there has been an increase in health care jobs. This is consistent with findings related to expanding Medicaid i.e. the infusion of federal dollars into states and reducing the number of uninsured promotes job growth.    

REFERENCES

AFI Daily Brief March 5, 2013 http://www.aif.com/legislative_info/2013/db1.pdf

Altarum Center for Value in Health Care- Health Sector Economic Indicators- Spending Brief. Insights from Monthly National Health Spending Data through January 2019. (The government shut down made some data difficult to obtain on time) April 2019. https://altarum.org/sites/default/files/uploaded-publication-files/SHSS-Spending-Brief_April_2019.pdf

Altarum Center for Value in Health Care- Health Sector Economic Indicators- Price Brief. Insights from Monthly National Health Spending Data through March 2019. April 2019. https://altarum.org/sites/default/files/uploaded-publication-files/SHSS-Price-Brief_April_2019.pdf

 Altarum Center for Value in Health Care- Health Sector Economic Indicators- Labor Brief. Insights from Monthly National Health Spending Data through March 2019. April 2019. https://altarum.org/sites/default/files/uploaded-publication-files/SHSS%20Labor-Brief_April_2019.pdf

Antonisse L, et al. The effects of Medicaid Expansion Under the ACA: Updated Findings from a Literature Review. Kaiser Family Foundation Issue Brief March 2018

Ayanian JZ, et al. Economic Effects of Medicaid Expansion in Michigan. N Engl J Med 2017;376:407-10

Baicker K and Finkelstein A. The effects of Medicaid Coverage-Learning from the Oregon experiment. N Engl J Med 2011;365(8):683-5

Brevoort K, et al.  Medicaid and Financial Health. National Bureau of Economic Research. http://www.nber.org/papers/w24002

Encinosa WE and Bernard M. Hospital finances and patient safety outcomes. Inquiry 2005; 42(1):60-72.

Ousley E. Florida Chamber of Commerce. Smarter Health Care Plan https://www.flchamber.com/florida-chamber-releases-smarter-healthcare-coverage-plan/

Garfield R, et al. The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid. Kaiser Brief March 21, 2019  https://www.kff.org/medicaid/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid/

Glied S et al. How Medicaid expansion affected out of pocket health care spending for low-income families. 2017 Commonwealth Fund August 22https://www.commonwealthfund.org/publications/issue-briefs/2017/aug/how-medicaid-expansion-affected-out-pocket-health-care-spending?redirect_source=/publications/issue-briefs/2017/aug/medicaid-expansion-out-of-pocket-spending-low-income

Gross T and Notowidigdo. Health Insurance and the Consumer Bankruptcy Decision: Evidence from Expansion of Medicaid. J Pub Econ 2011;95(7-8):767-78

Hoehn, RS et al. Effect of Safety Net Burden on Cost and Outcomes After Surgery. JAMA Surg. 2016;151(2):120-128

Ho V. Refinement of the Affordable Care Act. Ann Rev of Medicine 2018;69:19-28

Kamal R and Cox C. How has U.S. spending on healthcare changed over time? Peterson-Kaiser Health System Tracker December 10, 2018

Lindrooth RC, et al. The impact of Profitability of Hospital Admissions on mortality. Health Serv Res: 2013;48(2):792-809

Lindrooth RC, et al. Understanding the Relationship Between Medicaid Expansions and Hospital Closures. Health Affairs 2018;37:111-20

Ohio Department of Medicaid. Ohio Medicaid Group VIII AssessmentA Report to the Ohio General Assembly 2016

Sen AP and DeLeire.  The effect of Medicaid Expansion on Marketplace Premiums. 2016 ASPE Issue Brief http://aspe.hhs.gov

Sexton, CJ. Senate President  Predicts Accord on Health Care. Tampa Bay Business Journal. March 28, 2013

Tipirneni R et al. Changes in Health and Ability to Work Among Medicaid Expansion Enrollees: A Mixed Methods Study. J Gen Med 2019;34(2):272-80

Wu VY and Shen YC. Long term impact of Medicare payment reductions on patient outcomes. Health Res and Ed Trust  © Health Research and Educational Trust DOI: 10.1111/1475-6773.12185 RESEARCH ARTICL

The League of Women Voters of Florida encourages informed and active participation in government, works to increase understanding of major public policy issues, and influences public policy through education and advocacy. The League of Women Voters of Florida Education Fund works to register voters, provide voters with election information through voter guides as well as candidate forums and debates.

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