Why Politicians Cannot Sever the Medicaid Expansion from the ACA
Ohio is currently debating whether to institute the Medicaid expansion. The expansion is part of and essential to the mechanical functioning of the Affordable Care Act’s (ACA, a.k.a. “Obamacare”). The Obama administration stated as much at the U.S. Supreme Court. Because of its structure, you cannot cherry-pick the expansion without supporting the ACA more broadly. This essay explains (at least a few reasons) why.
You need to know a few things to understand the Medicaid expansion.
First, at its most elemental level, the ACA works like a balance sheet for both private and public health coverage; they have a revenue side and a payouts side.
Second, the expansion cannot be viewed in a vacuum—it must be viewed as a necessary piece of the ACA balance sheet, which in turn is intended to be an extension of the 20th-century welfare state.
Third, there are essentially two systems at work in the health insurance world—the taxpayer- financed system (Medicare and Medicaid) and the premium-payer financed system (private insurance).
The calls for Medicaid expansion not so subtly imply a basis in the morality of helping those in need. The premise to government healthcare programs is a desire to help needy people who cannot pay insurance premiums and a belief that these people should be covered by taxpayer-funded welfare state programs. Everybody else has to pay a premium for their own private insurance—in addition to their taxes. President Obama sees our generation’s mission as completing the welfare state by extending this kind of coverage to more people. The ACA was very clearly intended as a means to this end, as is the Medicaid expansion.
Meanwhile, the debate over the welfare state’s results rages, including over Medicaid. Despite the media’s malpractice in covering the expansion, the Buckeye Institute released a solid report arguing against expansion. Most people agree on helping the truly needy as a goal. However, in addition, some say our problem is over-extension, not under. It is immoral to inefficiently waste taxpayer money and pass the excessive debt of one generation on to subsequent generations.
These people think our generation’s calling is to avert a fiscal crisis, caused largely by inefficiencies in social welfare programs. They point to the 1990s welfare reform as an example, and point out that the Medicaid program does not learn from that lesson—it has few, if any, provisions that require or incentivize participants to raise their income or acquire their own private insurance. Further, outcomes are better for patients with no insurance at all, than for patients with Medicaid (a recent Oregon study further solidified the evidence of this with an apples-to-apples comparison).
Medicaid covers the poor, the elderly, the physically disabled or handicapped, and certain minors. The elderly take up most of the costs, largely through nursing home expenses. Medicaid would continue to be available to these existing groups, based on their income. However, the income levels would be adjusted to also include people in these groups, up to 138% of the Federal Poverty Level (FPL). The FPL ranges from about $11,490 for an individual to $23,550 for a household of four. The FPL does not adjust for a person’s assets, education, eligibility for other welfare payouts (such as food stamps) or any other factor.
But the ACA drastically raises this threshold. A whole new category, currently not eligible for Medicaid at all, will become eligible: adults who are below 400% of the FPL, childless, not disabled in any way, and not pregnant. This new threshold would make subsidies available to a single person making $45,960 (four times the FPL for a single-person-household).
Why the Expansion is Part of the ACA
Now let’s move over to how this works for the private side of health insurance. The ACA affects both sides of the insurance company’s balance sheets as well. You see from above that the effect on the federal government is that the ACA makes taxpayers pay for more coverage to more people with higher incomes than before, plus the new category. This gets them out of the private system. By doing this, taxpayers pay for more coverage; insurance companies pay for less.
On the revenue side, the individual mandate requires virtually everybody to buy coverage. This creates lots of new premium payers, while (as you see above) the taxpayers pick up those with the most claims. These premiums will go to cover the insurance company’s new major expense, which is the “guaranteed issue” mandate requiring insurance companies to cover those with preexisting conditions. These people are not really insurance customers, but rather just payees.
Most of those new premium payers will be net contributors to the insurance company’s balance sheets, because the vast majority of people without health insurance, who are not eligible for full government coverage, are healthy young people. More often than not, they can afford insurance but choose not to pay for it. They are likely to avoid paying because they are healthy and want to spend their money on other things. Under the ACA, they will pay premiums but will have few claims. Under the ACA’s Medicaid expansion, the insurance companies will benefit from the significant taxpayer money subsidizing premiums for these millions of new Medicaid beneficiaries with income below $45,960 who are also less risky (i.e., less likely to file major claims).
Here, the insurance companies are being commandeered to serve the federal government’s desire, manifest in the ACA, of transferring money from healthy people to people with preexisting conditions. In supporting this part of the ACA, the insurance companies gambled that they would make more money from the individual mandate than they would pay out under guaranteed issue. The Medicaid expansion is probably mathematically necessary to make this happen (although whether it or anything else is sufficient or not, is speculative at best). If the expansion does not happen, or if it is not sufficient to balance the balance sheets, then we all pay more in taxes and/or premiums—and with the individual mandate, insurance companies will have an easier time raising premiums than the government has raising taxes.
Governor Kasich chose not to fight over 2011’s Issue 3, which put the ACA on trial. He cannot avoid a debate on the subject now, because the expansion debate came to his doorstep. The ACA makes insurance companies agents of government redistribution, consistent with the goals of the 20th century welfare state. That being the case, the expansion should put the ACA and the welfare state on trial again. After all, if the welfare state and the ACA are so beneficial to the needy and Ohio, then we should expand it. If not, then we should reform or retreat from it. Either way, we cannot distinguish the Medicaid expansion from the ACA, any more than we can distinguish the ACA from the social welfare state.
Josh Brown, Esq. is a lawyer who work in Columbus, Ohio and concentrates on Ohio municipal issues, law and economics, constitutional law, and healthcare issues.
All opinions expressed belong solely to their authors and may not be construed as the opinions of other writers or of OCR staff..