Congress Considers Changes to Medicaid Expansion Funding

The liberals and the mainstream media are using scare tactics to upend efforts to bring much needed transparency, accountability and fairness to the Medicaid program. In reality, it is the blind defense of the status quo that will ultimately undermine the Medicaid program for those who need it.

A key proposal being considered by the House is whether federal funding for Medicaid expansion should remain as is or whether it is time for Congress to bring federal funding for this added category of enrollees in line with other Medicaid populations.

This debate ties back to Obamacare where the authors not only attempted to bribe the states to expand their Medicaid programs with an enormous bump in federal support but also attempted to punish those states that did not expand by threatening to remove all their Medicaid funding. The Supreme Court stepped in and struck the provision that would have states lose all their Medicaid funding but left in place the new federal enhanced funding.

Today, for states that expanded their Medicaid programs as directed, the federal government assumes 90% of the cost for the new expansion group. To put this funding shift into context, the historical categories of Medicaid enrollees—low-income pregnant women, children, elderly and disabled—receive the standard federal match rate which ranges from 50% to 76%, depending on the state.

This funding scheme creates a cascade of distortions and unintended consequences. Most notably, since they get more federal money for the new group, it means states are more likely to seek out and enroll the expansion population over other groups. Enrollment data shows the shift that has occurred. In 2013, the year before passage of Obamacare, there were 61.1 million Americans on the program. Ten years later, the number jumped to 85.5 million. Furthermore, the makeup of the program has shifted. In 2013, before the expansion, there were 27 million low-income children, 10 million adults, five million disabled, and four million elderly on the program. By 2021, the new expansion population surpassed all groups, except children, reaching 19 million enrollees.

This funding scheme also leads to more costly care. Per person spending for the adults in the new expansion group is significantly more than non-expansion adults in the program. The Congressional Budget Office estimates that Medicaid spent $3,630 per enrollee for adults in the traditional enrollment category where Medicaid spent $7,630 per enrollee for adults in the new Medicaid expansion category.

Thus, in addition to the 90% match rate fueling increased enrollment away from traditional Medicaid enrollees, it appears to also lead to more costly and more expensive care settings such as hospital emergency rooms.

Recently, hospitals have raised concerns and complaints about the change in federal funding, claiming these changes would result in hospital closures. It is important to note that Medicaid is not the sole source of funding for hospitals. Hospitals receive funding from both public and private sources. Rather than using Medicaid as a band aid for its shortfalls, if there are genuine funding needs, Congress should conduct an audit of the funding sources and identify the needs of specific hospitals.

Research by colleagues at The Heritage Foundation found that federal funding programs to hospitals for caring for the disadvantaged is a black box and there needs to be greater transparency and accountability for how those funds are allocated.

Returning the match rate to a standard match rate also does not mean there will be mandatory disenrollment. It’s worth noting that the Congressional Budget Office released a letter where they estimate that the vast majority of the expansion group would either stay on Medicaid or shift to alternative coverage, such as employer-sponsored coverage or coverage through the Affordable Care Act exchanges.

Further, many states might find they have greater flexibility to design and tailor benefits more appropriately for this group. Two states, Wisconsin and Georgia, received waivers from the federal government to add a similar group to their Medicaid programs but did so under normal match rates. Congress and the administration could offer a pathway for states to transition and ensure minimal disruption.

Fifteen years have gone by since the passage of Obamacare. The goal of Obamacare to bribe the states to expand their Medicaid programs has run its course. Today, 41 states have expanded and 10 have rejected expansion. It is time for Congress to stop prioritizing the Obamacare enrollees over the traditional groups and remove the incentive for the states to favor able-bodied, childless adults over pregnant women, children, elderly and disabled.