Alaska Medicaid Expansion: Don’t Do It

When the U.S. Supreme Court gave the green light to Obamacare, it struck down the power of the federal government to force states to expand their Medicaid programs. As it was passed by Congress, the Affordable Care Act (ACA), mandated that all states expand Medicaid coverage to include those earning income up to 138% of the federal poverty level. If any state refused to do so, the federal government could take away all federal Medicaid funding, even the Medicaid funding that existed prior to the passage of the ACA. The Court ruled that this component of the ACA exceeded the authority of the federal government and struck it down because that portion of the law constituted an undue coercion on sovereign states to comply with the wishes of the centralized federal government.

By Tom Hendrix

When the U.S. Supreme Court gave the green light to Obamacare, it struck down the power of the federal government to force states to expand their Medicaid programs. As it was passed by Congress, the Affordable Care Act (ACA), mandated that all states expand Medicaid coverage to include those earning income up to 138% of the federal poverty level. If any state refused to do so, the federal government could take away all federal Medicaid funding, even the Medicaid funding that existed prior to the passage of the ACA. The Court ruled that this component of the ACA exceeded the authority of the federal government and struck it down because that portion of the law constituted an undue coercion on sovereign states to comply with the wishes of the centralized federal government.

Because of this ruling, each state now has the option of expanding its Medicaid coverage but cannot be forced to do so.  Therefore, each state must decide what it will do, including Alaska.

Won’t the federal government pay for Medicaid expansion?

The lure of Medicaid expansion seems tempting: more citizens will get Medicaid coverage and additional federal taxpayer dollars will flow to each state to cover these new Medicaid beneficiaries. The federal government will, in effect, be paying for all of it, for the first three years. There are several problems with this scenario.

The first problem is that the federal government has been drowning in red ink for the last four years. It has been operating in the red more than a trillion dollars. Since the federal government is not bound to pay for the first few years of expansion, Alaska cannot trust that a future Congress will continue to pay for the expansion.

The second problem is that once Alaska makes the promise to cover a new group of individuals, by law, the State cannot go back on that promise. To make even partial changes to the program requires a long and onerous process that requires federal approval. There is no flexibility.

Finally, Alaska already spends too much. If Alaska expands its Medicaid coverage, there will be additional Medicaid recipients which will necessarily increase the state operating budget. Even without the Obamacare Medicaid expansions, state expenditures have skyrocketed over the last ten years. Juneau has spent far more than previous years while the population growth has been insignificant.

Won’t Expanding Medicaid Lower Health Care Costs for the rest of us?

It is predicted that a wider Medicaid expansion means there will be less uncompensated care, although no one can predict the extent to which uncompensated care will fall.

According to a report from the Alaska Hospital and Nursing Home Association, uncompensated care, where health care services are provided and the bills left unpaid, reached $178 million in 2010. The reason this is significant for every Alaskan who pays their bills, is that hospitals and nursing homes who don’t get paid, will charge more to others in order to make up the difference. The idea is that by enrolling in Medicaid those who cannot pay, health care costs for everyone will be reduced.

But, the plan won’t work. The same report also found that providers were “underpaid” $232 million. How could a provider like a hospital be underpaid? By the government, of course. Medicare and Medicaid pay less than private insurers. Because they pay less, providers charge the private insurers more to make up the difference.

Putting more people on Medicaid will drive up the costs for everyone not on Medicaid. This has been the case since before the Obama Administration and the ACA does not fix this problem; it exacerbates it.  In order to pay for implementation, the law cuts Medicaid reimbursements even further. If Alaska wants to reduce uncompensated care, it would be cheaper to simply pay the bills by appropriating funding for them. More Medicaid patients will only make the problem worse.

Unfortunately, these problems don’t stop health care providers from lobbying policymakers to accept the expanded Medicaid option because of reasons of self-interest or because they like the idea of a centralized authority being in control of health care decision-making.

The Federal Government Is Already Backtracking On Its Promises

Under the current ACA, the federal government promises to cover 100% of the costs to the states for Medicaid expansion for three years. After three years, and gradually by 2020, the federal government promises to pay for 90% of the cost. However, in his FY 2013 budget, President Obama proposed less than what was originally promised. What will happen a few more years down the road as federal budgets come under increasing pressure to curtail spending? Would it be wise for Alaska to trust what they say now? What makes it difficult to answer these questions is that no one really knows to what degree the federal government will be able to keep its financial promises.

To attempt to answer this question, The Heritage Foundation created a model to anticipate several scenarios of individual state costs that change according to the decisions made by federal policymakers.

Percentage of Expansion Paid For by Fed Govt. Alaska Costs by 2019 Alaska Costs by 2022
100% (Promised by ACA) $21.5 million $63.3 million
90% $57 million $98.7 million
80% $78.5 million $156 million
President’s FY2013 proposed $153 million $278 million

In the first simulation, they considered the period from 2014 through 2019 under existing law and estimated that Alaska would have an increased Medicaid bill of approximately $21.5 million. This doesn’t sound too costly but remember that the federal taxpayer is picking up 100% of the cost for 3 of 6 years. If this same scheme is extended from 2019 until 2022, the cost to Alaska increases to about $63.3 million and this is the best case scenario.

What happens if the federal government decides to lower its matching funds to 90% consistently across this time span? If that should happen, Alaska would need to spend almost $57 million by 2019 and $98.7 million by 2022.

What if the federal government decides to keep the same schedule of ACA matching requirements but reduces the federal burden by another 10%?  Under this scenario, Alaska would be required to pay $78.5 million in 2019 and $156 million in 2022.  Finally, what if President Obama’s FY 2013 budget were enacted?  This would result in Alaska paying $153 million in 2019 and $278 million by 2022.

These costs would not be insignificant to Alaska. These alternate scenarios and the likelihood that one of them will be adopted (which is high) cast a cloud of skepticism on the picture that the ACA paints. It is not a realistic fiscal picture. It doesn’t make realistic predictions.

These little changes in the federal government’s commitment (as shown in the last 3 scenarios above) can occur with a simple majority vote under reconciliation and Alaska’s hands would be tied with a ballooning Medicaid budget. In the above scenarios, the original promise of a $63 million price tag by 2022 is increased by 155% in the first case, increased by 246% in the second case and a whopping 441% in the final case. This sounds like a potential bait-and-switch and the President has already tried once to make that switch with his FY2013 budget proposal.

Fortunately, the U.S. Supreme Court has given Alaska a choice. It has ruled that Alaska cannot be coerced to expand the existing Medicaid program to the levels envisioned in the ACA.  However, if the State of Alaska ever decides to make the affirmative choice to expand Medicaid under the ACA, what would stop a future Congress from changing the rules after the fact? Clearly the answer is we could do absolutely nothing about it.  We would be stuck and a future court is not going to allow us to opt out if we have already chosen to opt in regardless of broken federal promises to pay.

There are better and more innovative solutions Alaska could pursue to make health care more affordable and reduce the ranks of the uninsured. Alaska has options, but we will be severely limited in our pursuit of those options by expanding Medicaid under the terms laid down by politicians in Washington, D.C. who have no stake in our state’s fiscal health.

Tom Hendrix is Research Fellow in Health Policy and Economics for the Alaska Policy Forum.