FREEPORT — When Medicare and Medicaid were passed as amendments to the Social Security Act in 1965, Medicare for the elderly was the main event. Medicaid was an add-on designed to provide aid to poor parents and to the blind and disabled. In 1966, there were 4 million Medicaid beneficiaries.
Today, Medicaid has 73 million enrollees, about 23 percent of the population. Around 12 million of these individuals have been added as a result of the program’s expansion under Obamacare. Most of them are working-age adults, with and without children, with incomes up to 138 percent of the poverty level. Most have access to employer insurance or to generous Obamacare subsidies. Even before the Obamacare expansion, the history of Medicaid had become the best example we have of how a welfare program can grow far beyond the intended scope and cost estimates of its designers.
Public policy based on good intentions usually has a cost, and in the case of Medicaid, the cost has been very high. Expansion advocates paint a very rosy picture of the economic benefits that would result from an inflow of federal dollars. But the picture completely ignores the cost of the federal funding and simply treats it as free money.
Medicaid is already the third- largest domestic item in the federal budget. The Congressional Budget Office estimated in June that program outlays will rise at an annual rate of 5.4 percent over the next 10 years, considerably faster than growth in the economy or federal revenues, and will be $655 billion in 2027. It is feckless to pretend that providing federal funds to the states for Medicaid has no cost and only provides benefits.
Although the states pay only about 40 percent of Medicaid’s cost on average, it is now the second-largest item in their budgets, and many of them have been struggling with their portion of the program’s expense for years. Yet 31 of them couldn’t resist the temptation to expand their programs when the federal government offered to pay 100 percent of the cost initially, declining to 90 percent in 2020 and beyond. The expansion states began paying their part of the expansion cost this year, and over the next several years many of them will find that even 10 percent of increased program expenses will put additional stress on their budgets.
In Maine, the Office of Fiscal and Program Review estimates that expansion would cost the state $31 million in 2019 and nearly $55 million by 2021 – and the cost would continue to rise after that. Even if some of the cost is offset by increased economic activity, the additional burden on the state’s budget would be substantial. Maine, like other expansion states, would have to pay the additional cost by raising taxes, making cuts elsewhere in the budget, reducing eligibility for other beneficiaries, reducing provider reimbursements or some combination of these. The necessary adjustments would be difficult and painful.
There is an even larger and more important issue relating to Medicaid. The greatest flaw of Obamacare is that it widened and deepened the role of the third-party payment system, which is the primary driver of higher health care and insurance costs.
When someone else pays the bills, consumers don’t care about expense. It will be impossible to control the rising cost of care and escalating insurance premiums unless consumers have more control over their health care dollars, have an incentive to seek value and providers have an incentive to create it. Medicaid removes any incentive to restrain demand or to seek value. This is a cold reality that Medicaid and universal care advocates don’t want to hear.
There will always be individuals and families with special and expensive needs that are not accommodated easily in the existing private-public policy framework. Advocates think that Medicaid is the simple solution to these needs because the care is free and there are no limits on claims. But a general policy covering a large segment of the population to meet the needs of a relatively small number of individuals is likely to be extremely expensive, as Medicaid has proven to be. It would be far more efficient and cost effective to provide targeted, means-tested assistance to those with special needs than to expand free care to a large number of mostly healthy individuals who have other options for insurance.
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