Medicaid Expansion 101

PART I, WHAT IS MEDICAID? 

Chapter 1

A History of Medicaid

Medicaid in the United States is a federal and state program created in 1965 that helps pay medical costs for some people with limited income and resources. Medicaid also offers benefits such as nursing home care and personal care services.

Medicaid is the largest medical and health-related services program for people with low income in the United States, providing free health insurance to 74 million low-income and disabled people (23% of Americans) as of 2017.

In this means-tested program that is jointly funded by the state and federal governments and managed by the states, [5] currently each state has broad leeway in determining who is eligible to receive medical benefits of the program.

States are not required to participate in the program, although all have since 1982.

Medicaid recipients do not pay a premium while in the program and their co-pay for an office visit is about $2.45, much less than a normal co-pay. For this reason, some Medicaid recipients tend to use healthcare services much more than the average person.

Some studies have shown these "super-users" may only constitute 5-10% of Medicaid recipients but consume around 80% of the services paid for by Medicaid. Because, under federal laws, emergency rooms cannot turn them away no solution to this behavior has been found.

Chapter 2

Medicaid Today

Medicaid provides medical care to people who are financially impeded or laboring under a lifelong inability to take care of themselves. It helps pregnant women unable to afford prenatal care and children.

For others Medicaid is a safety when the inability to pay for healthcare is temporary. In the most recent Wyoming Medicaid report the average time on Medicaid support was 9.2 months.

Roughly 60% of Medicaid recipients are children and because they are relatively healthy, they only use about 20% of the state's Medicaid budget.

While the care of these children is an accomplishment to be celebrated by our state, it also shows us that adults on Medicaid are much costlier, dramatically demonstrating how in the proposed expansions of Medicaid costs are usually under-estimated.

Using only the medical spending (not long-term care) component of the 2017 Wyoming Medicaid budget, the average recipient costed the state $4689.75. But the average adult costs $9379.29.

Medicaid costs have risen since its creation in 1965, and in 1986 Congress passed the Omnibus Budget Act to try and lower the costs by reducing what hospitals and healthcare providers are paid, lowering reimbursement every year for about nine years.

As a result, today Medicare pays a hospital roughly 57% of what an insurance company pays. Another way to look at this is that on average Medicare pays only 89 cents of the costs of care provided by the hospital or doctor. Outpatient reimbursement for doctors may be as low as 10-20% of a conventional payment.

Since Medicaid in most states pays less than Medicare, reimbursement to hospitals is even less, about 86 cents on the cost dollar, so hospitals and doctors still lose money every time they see a Medicaid patient.

Over the past 33 years state governments have struggled to cover Medicaid costs and repeatedly lowered what they pay.

If a doctor saw only Medicare or Medicaid patients they make about $23 to $30 dollars an hour after paying their normal office, staff and regulatory costs. From this low income they would still need to pay their own healthcare and retirement costs, resulting an actual loss to the doctor.

PART II, WHY DO PEOPLE WANT TO EXPAND MEDICAID?

CHAPTER 3

The Current Terrible Healthcare Market Place

Healthcare is extremely expensive in the United States; for example, costs range from

$200 for a doctor's visit, to $5 for an aspirin in the hospital or ER, several thousand dollars for an ambulance ride and well over $100,000 for some surgeries.

Healthcare insurance is also expensive, especially when citizens pay for it out of pocket with no company support. Deductibles and co-pays are so high they cause people to put off seeing a doctor, which can lead to "crisis" treatment when the problem does not go away, raising the cost well above what the earlier visits might have cost to resolve the illness.

In many Wyoming towns, the average person has one insurance company and one hospital available, so functionally they live in a monopoly.

On average in the past four decades personal and family income has not even come close to keeping pace with the rising costs of healthcare and healthcare insurance. It has now become a fiscal crisis for many more than just the lowest income people.

There is no straight forward way for the average person who wants services in the healthcare market to get a straight answer to questions as simple as "How much will this surgery cost me?" or "Exactly what is covered in this insurance policy?" The fine print on insurance policies makes it almost impossible to know exactly what you are buying. Available choices of treatment and medications covered are so complex you would need a lawyer and a doctor to explain it to you.

To make good decisions even more difficult, the coverage details change quarterly based on the insurance company's basic clinical policy. This policy can change without notice, and often does.

CHAPTER 4

How We Got to this Terrible Place in Healthcare

There are many reasons we are in this terrible place, but here it is condensed into a few sentences:

Since 1986 when the government started paying less than other people and the insurance companies, hospitals, doctors, pharmacies, physical therapists and anyone else who provides part of your care has been shifting their losses from Medicare and Medicaid patients onto everyone else.

This is called "cost-shifting" and is considered an indirect, or hidden tax on regular consumers of healthcare.

Since roughly 55% of American healthcare is bought by Medicare and Medicaid, the other 45% of customers are (unhappily) paying the difference between what the care costs and what the government pays, which is below cost.

By setting the reimbursement below the cost of the care, the government is basically shoplifting half of American healthcare, and making working people and employers pay for the crime.

People on Medicare used to come solely from a group that paid a Medicare tax their whole lives for the benefit. But politicians started using Medicare for other people as well, with no additional tax base to fund it. This contributed to the government's need to lower payments to healthcare providers as it was spread too thin.

One such group of people who receives Medicare were on the federal disability program, which now numbers over 11 million people. In a recent study by the General Accounting Office, 90% of people on disability are not really disabled. But they are consuming Medicare healthcare resources.

A few years before Medicare started paying less for care, the government offered to pay minimum reimbursements for tuition which in many instances exceeded the current tuition costs at colleges. Almost overnight all colleges raised their tuition rates since the government said it would loan the amount to students.

Tuition has never gone down since then which means that doctors, nurses, pharmacists, physical therapists and anyone else who needed college training to provide care more likely to graduate with large student loan debt and a demand for higher incomes.

Insurance companies began reacting to the higher costs of care after the cost-shifting by raising insurance premiums, increasing deductibles and co-pays. Insurance companies began merging in an effort to consolidate and lower costs, meaning there were fewer options for an insurance customer.

Since insurance companies must license in each state, some states have only one or two choices for insurance. The Affordable Care Act added more requirements on these companies which made for fewer choices and higher premiums.

CHAPTER 5

THE TRUTH OF WHAT EVERYONE WANTS IN HEALTHCARE

The average person wants the ability to pay a reasonable and fair price for healthcare and health insurance.

They also want to compare prices from one hospital, doctor or pharmacy to another so they can make a value-based decision on where and what they want to buy. Just like any other cost based decision- cars, houses, loans, etc.

The healthcare consumer wants an insurance policy contract that is readable and easy to understand. They would like choices of what gets covered and what amount of risk they will take for each part of their healthcare. They want the option to decline certain coverage.

The average healthcare provider wants the ability to see what an insurance company is going to pay them for any service. Instead of having to call the insurance company and ask the price for every individual service they provide (only one price per phone call), they would like a price list. So, like the patients, doctors can't necessarily see a price until after the transaction.

Doctors and other providers would like to be reimbursed enough to make a living. Hospitals would like to be reimbursed enough to cover the costs of care and the future need to maintain and modernize their facilities as technology and medicine evolves.

In a perfect world, hospitals want to be cost-effective and not have to gouge their local customers. In Wyoming most everyone who works at the hospital either directly or indirectly knows their patients who are also their friends.

Because so much of the care they provide is not reimbursed sufficiently to cover the costs, hospitals want Medicaid expansion so it will cover these completely unpaid bills, even though Medicaid does not cover the cost of care. They do not want price transparency as they need to charge as much as possible to cover their losses and don't want there to be price-point competition in the region.

Because they are businesses, insurance companies need to make money. They benefit from the lack of transparent pricing and prefer private, non-disclosable contracts with hospitals and other providers. The Affordable Care Act has seriously decreased the number of their competitors, and they like that.

In a perfect world, an insurance company would like the ability to sell any insurance to any person with only four requirements: they have to pay within 90 days, any provider is eligible to send them a bill for services rendered, they post a bond with the state's insurance commissioner and they cover pre-existing conditions. But each state and the federal government have so many requirements that insurance companies can't customize policies as one does when selling you a car or a computer. They gave up.

A creative and entrepreneurial insurance company would want to innovate and sell cost- effective policies that cover just what the customer wants. But all the federal and state rules and the high costs of care have just beat it out of them.

Politicians want to provide a solution to all of this mess for Wyoming citizens with a program that helps out, which is why they are considering Medicaid expansion. Because the federal government is promising to pay for 90% of it, the concept seems sound. Sadly, the federal funding is the cheese in a trap that has maimed everyone else who took the bait.

PART III, WHAT HAS HAPPENED IN OTHER STATES AFTER THE EXPANSION?

CHAPTER 6

WHAT PEOPLE DO AFTER MEDICAID EXPANSION

We all act out of self-interest, or for the interest of our family or even community. We rarely have the opportunity live our lives solely based on the needs of others. It's understandable. You've got to eat, you need a roof over your head, you've got kids to care for as well. You work for your money, and mostly you get paid for your efforts and skills

So when a state expands its Medicaid program, people will be people, and "free" medical care will be used indiscriminately.

As a friend once said, if you are selling hamburgers for $50, some people will decide they are hungry enough to buy a burger. You sell a few burgers.

But if you are giving away burgers for free, you're going to need to cook more, as the definition of "hungry enough" gets lowered. Hey, they're free.

When the option to get basically free healthcare is offered, some people will quit working altogether or take lower paying part-time jobs. Given the choice of having a full-time job but high deductibles and co-pays, or no or a low-paying job with $2.45 co-pays, some folks opt for the latter.

Most states think they had this figured out when they estimated how many people were going onto Medicaid. But more than twice as many people have showed up in each state that expanded. The elective choice to stop working is not included in these estimates.

Neither is the fact that many people will move to your state to take advantage of your Medicaid. Why? Is your state's Medicaid better? No, the state they left had no one leftto care for them, as their other state's Medicaid created so many new patients that wait times for a clinic visit or even an ER visit grew so long, it was better just to pick up and move to a state that was not yet wrecked by the numerous Medicaid recipients competing for care in a shrinking healthcare infrastructure.

Think about that. It was easier for them to move to another state than to try and get healthcare where they lived, even though that care was essentially free.

Every day in Wyoming doctors see patients from California or New York who moved here with no family or job reason, just the ability to get healthcare without a long wait. These folks tend to use every other social service offered by the state, so all other support programs are tapped as well. One recently built children development center noted that 38% of its clients moved to Wyoming solely to use the facility.

And this is before you expand Medicaid. This is the status today. If tomorrow able-bodied adults will be able to take advantage of this safety net program more as a convenience, expect many more people.

You're going to need to pay for a lot more healthcare.

CHAPTER 7

WHAT EMPLOYERS DO AFTER MEDICAID EXPANSION

Healthcare insurance is the single largest expense for employers after the cost of salaries. The increased cost of insurance has decreased money available for salaries, bonuses, more jobs and business expansion investments. The increased costs also bite into profit which decreases the interest in other investments in any given business.

As a result, employers (businesses) are always looking for a legal way to decrease the cost of healthcare insurance.

They can downsize and use fewer people to do the work. They can send jobs overseas.

Or they can re-structure full-time jobs to part-time jobs that don't have an insurance benefit.

And they do.

This has a negative impact on the state "full employment" percentage, which puts them into a gray area of not being unemployed, but neither are they full employed. In short it makes the job market in the state weaker.

It's completely legal, and a reasonable response from employers seeking to make more money or offer better prices. But other states have not been able to predict the magnitude of this behavior and it increases the number of people applying for Medicaid.

Because there are very few insurance companies to choose from, employers can't negotiate a better deal for their covered employees. They have no negotiation leverage. The insurer can tell them to take it or leave it.

CHAPTER 8

WHAT HOSPITALS DO AFTER MEDICAID EXPANSION, AND AFTER

Hospitals and new Medicaid recipients are the biggest beneficiaries of Medicaid expansion.

At first.

But remember that Medicaid does not cover the cost of the care, and when more people on Medicaid appear wanting care, the money the hospital used to lose on uncompensated care is suddenly eclipsed by a larger amount of money lost on under-compensated care.

And when businesses start dropping their employees into part-time jobs with no insurance benefit, the number of insured patients shrinks and is replaced by Medicaid, the hospital loses more money than before.

So, in the first year or two, hospitals appear to be better off. Then, not so much.

This is not speculative, as we have already seen hospitals across the US where the amount of uncompensated care is very small, but even with everyone covered by Medicare and Medicaid, the reimbursement does not cover the cost of the care, so the hospitals go bankrupt.

Some people refer to Medicare and Medicaid's under-payment sarcastically by saying, "We may lose money with each patient, but we'll make it up with volume!" This is the kind of dark humor pervading today's market.

Within three to five years, a common pattern in an expansion state is that the typical rural hospital's fraction of insured and paying patients drops from a survivable 30% to 45%, down to 10% to 20%. Then the percentage of paying patients is not enough to cover the losses of the other patients.

So ironically the hospitals find themselves just as financially stressed as they were before expansion, only with a higher burn rate as there are more patients demanding under- compensated care.

And they go back to the legislature asking for relief, again.

CHAPTER 9

WHAT STATE GOVERNMENTS DO AFTER MEDICAID EXPANSION

Legislators who elect to implement Medicaid expansion initially celebrate the fact that they have helped the working poor get insurance coverage with Medicaid. Their goal was noble.

In the next few years that state government starts suffering the consequences of this expansion.

As outlined before, the Medicaid program attracts more people than modeled, so the costs exceed estimates. The state government now must come up with even more money from new taxes, or take the money from other departments' budgets.

Ironically, with more people wanting Medicaid, including the people who moved to your state, other state support programs will demand more money as well. The new people will consume less and pay less in sales taxes as they are not working or not working as much. So, the balance of those working versus those not working in the state tips towards the takers, not the makers.

This tipping point is worrisome because Medicaid is mutated from a program of need to one that may be abused for convenience. This has been the case in other expansion states.

In some ways this has already happened in non-expansion states, where we see the Medicaid birth rate is 8 to 10 times the unemployment rate, where couples are incentivized not to get married, so they get a "free baby". The most common factor associated with diminishing the adult potential of a child is a single-parent home, a parental choice encouraged by Medicaid.

In Ohio Medicaid accounts for 38% of the state's budget. It is 50% larger than their education budget. This number is paralleled in other states who have expanded and is not unique to Ohio.

So post-expansion, states find they don't have as much money left for education, infrastructure or law enforcement. Downsizing the department of education, combined with hospitals downsizing their staffs, again means state unemployment rate rises. In most Wyoming towns the school system and the hospital are among the top three employers, so the indirect effect of Medicaid expansion is to weaken the job market in every town. Expansion virtually guarantees weakening the job market in every city in Wyoming.

A weaker local job market speeds up the state's brain drain as well, forcing more young educated Wyoming kids to leave the state for bigger and better job markets.

Now, two or three state legislative sessions later, most legislators don't know what hit them, but they know it's bad. At the same time, they find that there is no "off switch" for Medicaid expansion.

And if there were, it is doubtful they would have the political courage to use it.

CHAPTER 10

WHAT PEOPLE WITH INSURANCE DO WHEN MEDICAID EXPANDS

People who have healthcare insurance after Medicaid expansion quite possibly suffer the most.

Firstly, an increased number of Medicaid recipients stresses their local clinics' providers, some of whom retire or move to another state. As a result, there are fewer providers.

Secondly, most professionals considering moving to your city or state evaluate what percentage of their future patients (customers) actually pay for their care. When a state increases the number of Medicaid recipients, it actually decreases the chance that a doctor will move to your state.

In the past some medical societies have publicly stated in press releases and interviews that more doctors will want to move to your state with Medicaid expansion. Working doctors, who are not political hacks plotting their climb up some party ladder, laugh at this assertion as it is just pure fantasy. Medical students research about where they want to live and practice, let alone doctors. The possibility of working in a state where you don't get paid tends to make these professionals, who spend hundreds of thousands of dollars and many years on their qualification as a doctor, to look at other states.

Third, if your state's number of Medicaid recipients expands, some of those people used to be in an insurance pool. If the core concept of insurance is to share risk, when the pool or people sharing risk shrinks, healthcare insurance premiums will necessarily rise. Another trick the insurance companies use to avoid this cost shifting is to shrink the benefits of the insurance policy, with higher co-pays and deductibles. This means more costs out-of-pocket for the poor person who has actually been trying to pay for their own care.

And finally, though by no means making this list complete, local healthcare infrastructure weakness with fewer professionals doing even more work and getting paid less, so the person who pays for their care has even longer wait times for appointments or in the emergency room, or they have to drive a greater distance for care.

CHAPTER 11

WHAT DOCTORS DO WHEN MEDICAID EXPANDS

Doctors and other providers have tended to care for Medicaid recipients as both a humanitarian and civic duty. No one wants to deny access to care, especially not to children, the elderly, or chronically infirm.

When a small percentage of patients were on Medicaid, providers just rolled with it, despite the losses.

But when the number of these patients who did not cover the cost of the care started displacing the patients who did pay for care, doctors started having to prioritize the paying patients first, so they could stay in business. This increased the wait times for Medicaid patients and functionally decreases the number of providers available to see them.

This increase in the number of Medicaid recipients increases the competition for a decreasing number of office visit slots. And so on.

In some settings the increase in the Medicaid market fraction is not a matter of priority, it is existential. The clinic simply can't stay in business, and the providers either retire or move away. Hospitals with a market share of Medicare and Medicaid that rises too high have gone bankrupt as well.

Because every state's Medicaid reimbursement rate has been decreased with time due to budget constraints, Medicaid pays providers less and less as time goes by, which makes this dark scenario sadly familiar across the US.

CHAPTER 12

WHAT OTHER STATE DEPARTMENTS DO WHEN MEDICAID EXPANDS

As Medicaid expands past its predicted costs, the money that would have gone to other state departments decreases.

The Departments of Education and Transportation necessarily find they have to do the same with less.

Because some people moving to the state to take advantage of your expansion bring children, the school systems have more students.

Capital spending is decreased.

Staffing levels drop. The ability to respond to bad road conditions is not as robust. Some school programs are eliminated.

The indirect effects of the expansion divert resources from every other department.

PART IV, ACTUAL SOLUTIONS

CHAPTER 13

SIMPLE ANSWERS FOR THE STATE GOVERNMENT

Not every step to giving Wyoming a normal market dynamic for healthcare costs anything.

The way to make care more affordable is to make the market dynamic closer to normal and to eliminate unnecessary laws.

Firstly, if the state of Wyoming were to request from the Administration a waiver from the components of the Affordable Care Act that govern private healthcare insurance, insurance companies would be free to write policies customized to the desires of their customers. The Obama administration issued several hundred waivers from the ACA to various parties.

If the Trump administration were to issue just one, to our state, it would be difficult for political opponents to challenge the waiver as it would threaten all of those waivers previously granted by President Obama.

If the only state insurance requirements were clean claims (payment within 90 days), payment to any willing provider, posting a bond of solvency and coverage of pre- existing conditions, the waiver would be politically defensible.

If the Wyoming legislature were also willing to overturn the state's other pre-existing insurance mandates, Wyoming would become a healthcare insurance free-trade zone and allow the opportunity for intense innovation in structuring insurance products. If it worked, this experiment in insurance free trade could be the template for solving insurance costs in the other 49 states.

We might not have enough room for all the employers who want to move here. By the way, this costs the state nothing,

Second, requiring all hospitals and providers of healthcare to publish their prices in an understandable format online will lead to transparency for consumers. Again, this costs the state nothing.

Third, all contracts between insurance companies and hospitals or providers must be in absolute dollar value, not multiples of Medicare payment. Medicare rates change from quarter to quarter and are very unpredictable, sometimes dropping 50% overnight for a particular service. As a result, providers charge higher prices to offset this risk.

Making contracts with absolute dollar prices not based on the ever-changing Medicare rates lowers risk and makes it possible for providers and hospitals to negotiate lower prices in the hopes of a favored status with an insurer.

Fourth, recognize that hospitals are a vital service for our communities. Instead of taking on the expense of a program the state can't even control, Medicaid, initiate a state program reimbursing the state's 27 hospitals for uncompensated care. In the long run this costs less than expanded Medicaid.

To implement this, a quarterly report from each hospital listing each care event with an attachment of the medical materials used is required. With material management now managed by computer systems in each hospital, it is simple for hospitals to submit the care event and the cost of the materials. The state can reimburse them for the materials plus up to 20% (to be negotiated) and a flat care fee. In the first two year cycle the budget must be capped to control risk. This program helps our hospitals and simultaneously gathers data to create estimates for next two-year budget. Notice the state is paying for the cost of the materials, not a retail rate.

The working poor whom we want to help can go to hospitals, all of whom have outpatient clinics, for their care.

Each individual hospital will have its own policy on deciding whom to pursue for reimbursement or who is truly a case of need who had fallen on hard times. This type of decision is locally based, and in our smaller communities, produces a higher quality decision, not one to be made two thousand miles away in Washington DC.

This program costs the state money, but it does not encourage other people in the country to move here to take advantage of us.

This program falls fully under the rules and control of Wyoming. The state has the option to sunset the program or replace it with something else based on the success of the program.

By basing reimbursement on the costs of the materials to the hospital, it can't be abused by patients or hospital executives. It is politically defensible. And it prevents hospitals from a growing number of under-paying patients who will, in five to six years, leave the hospitals just as stressed as they are today.

These four steps would make Wyoming healthcare more robust, sustainable and attract business to the state. Three of these steps cost us nothing and the fourth step is a program that remains completely under our control. Towns without hospitals don't tend to grow or attract businesses. They are vital parts of the community. Let's help our communities thrive with sensible and effective cost control policies instead believing in the fairy tale that Washington DC knows best and will solve our problems with more money.