Medicaid, the Free Lunch, and the Disintegrating Foundations for the Affordable Care Act

A couple of months ago before President Obama suspended the employer mandate, my local newspaper had an article supporting Medicaid expansion in Ohio. In that article the journalist interviewed a couple of supporters including a local business man who ran a janitorial firm and a hospital administrator. The local businessman wanted the Medicaid expansion because it would lower his employer mandate penalty. Since he had a significant number of employees who qualified for Medicaid and was planning on paying the employer mandate penalty, his penalty would be smaller with the Medicaid expansion. The hospital administrator wanted Medicaid expanded because some of the uncompensated care patients would be eligible for Medicaid. The businessman want Medicaid expansion to lower his penalty and the hospital administrator hopes that it will reduce hospital costs. To make matters worse “a new Harvard University study finds that enrollment in public program significantly increases enrollees’ use of emergency departments”. Since hospitals and doctors have been complaining that they are losing money on Medicaid patients, an increased amount of Medicaid services should create bigger losses.  The elephant in the room is whether Medicaid will improve health care outcomes for the poor. In hindsight it is interesting to note that the journalist did not make the argument that the Medicaid expansion was going to improve health care for the poor.  One of the architects of the Affordable Care Act, Jonathon Gruber, makes that argument at Wonkblog while trying to downplay the increased health care cost problem.

“I would view it as part of a broader set of evidence that covering people with health insurance doesn’t save money,” says Jonathan Gruber, a health economist at the Massachusetts Institute of Technology, who has also studied Oregon’s Medicaid expansion but is not affiliated with this study. “That was sometimes a misleading motivator for the Affordable Care Act. The law isn’t designed to save money. It’s designed to improve health, and that’s going to cost money.”

One of the shinning lights of the Affordable Care Act has been the Medicaid expansion. The Medicaid expansion was the proverbial “free lunch” which for relatively little cost expanded and improved health care for the poor. It sounded too good to be true and it was. Affordable Care Act supporters might say that they expected people would be unhappy when they found out that they could not keep their health plans or doctors but they appear to be totally unprepared for the Medicaid expansion being bad for hospitals finances. In a sense we are expanding the free health care clinic market so we should expect similar reactions by the patients and health care outcomes. If free health care clinics is such a good idea, why are we expanding Medicaid? If we assume that hospitals are losing money or breaking even on Medicaid patients, then expanding Medicaid will be bad for hospital finances. It was assumed that changing patients from uncompensated care to Medicaid would be good for hospital finances. If an increased number of Medicaid visits impacts hospital finances then the hospitals will attempt to shift their costs to other patients. This is bad news for insurance premiums. State and federal Medicaid administrators should be getting pretty nervous that the Medicaid expansion might cost 40% more than expected. The Oregon Medicaid expansion study showed patients made 40% more trips to the emergency room and shattered hopes that they would start using primary care physicians for their routine health issues. Mr. Gruber might dismiss saving money as a misleading motivator for the Affordable Care Act but the Medicaid expansion is shaping up to be a disaster for hospitals, insurance premiums, and Medicaid budgets.

As Hillary Clinton might say, “What difference at this point does it make?” I doubt the Affordable Care Act will implode in 2014 since there are so many safety nets but it will be a painful subject. After the election it is likely that both sides will try to reform health care in 2015. The Affordable Care Act seems to have created more problems that it has solved. The biggest problem for the Affordable Care Act is that over half of the people in the country believe that number one issue for health care reform is that it should make their health care more affordable and it hasn’t. Their costs have gone up. When it comes to reducing health care costs the Affordable Care Act has transformed that strange coalition of big government and insurance companies into a trust problem with the American people. The cost and trust problems are cascading. The Affordable Care Act supporters sold the Medicaid expansion as a way to reduce uncompensated hospital care and cost shifting. The expansion was supposed to be an easy win-win for improving cost and trust. Now it looks like that may not be true.  It looks like more of the same old promises. Maybe by 2015 we will have some accurate cost data and smarter administrators that will allow us to make smarter decisions about expanding Medicaid and improving health care outcomes. Maybe a little less of the big government view and a little more state government and free market view will reduce the risk and improve the decision making. The old way does not seem to be making health care better and a single payer system would be far more disruptive than the current mess. The two lessons I hope we have learned from the Affordable Care Act is that the cost does matter and any idiot can expand health care if they are allowed to ignore health care costs.