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Let’s Not Double-Down on a Failing Medicaid Program

February 28, 2013 J

Governor Tom Corbett in his recently submitted FY 2013-14 budget recommended to the state legislature that Pennsylvania not expand the Medicaid program beyond the nearly 20 percent of the population already covered. The Patient Protection and Affordable Care Act (PPACA), Obamacare, mandated the expansion to include all individuals below 133 percent of the federal poverty level–$30,000 for a family of four; however, last summer the Supreme Court held this mandate was too onerous for states. Nearly half of the states have decided against the expansion or have not reached a final decision.

Now it is up to Pennsylvania to decide whether they will expand this broken, costly program. Given the difficult budget choices the state has already had to make in recent years to balance its books, as required by law, the answer is very simple: Pennsylvania should join the list of states choosing not to expand. To do so would crowd out vital funding to our schools and universities, to rebuilding our roads and bridges, and to those social welfare programs to which our state is already committed.

In December, the Governor made the wise decision not to establish a state level health care exchange in Pennsylvania, joining twenty-four other states and protecting hardworking Pennsylvania families from burdensome government overreach.

Corbett stated, “It would be irresponsible to put Pennsylvanians on the hook for an unknown amount of money to operate a system under rules that have not been fully written.”

What is true in the case of creating a health exchange is even more so in the case of Medicaid expansion.

Pennsylvania currently has 2.4 million people enrolled in the failing Medicaid program. The program accounts for nearly one-third of the state’s budget costing taxpayers $8.2 billion in 2012. Overall welfare spending by the state was $10.5 billion (almost 40 percent of the entire budget). The Medicaid expansion would add between 800,000 and 1 million people rolls by 2022 burdening an all ready overworked system and exploding state spending. Even after the federal government’s generous cost-sharing, the cost of expanding the program is $2.8 billion by 2022 according to a recent report from the Kaiser Family Foundation. Governor Corbett estimates it will cost over $4 billion.

The federal government seeks to entice Pennsylvania and other states into expanding their programs by promising to pay all the upfront costs during the initial years and then pulls back in the outlying ones. However, this promise is not altogether true. The head of the Pennsylvania Department of Public Welfare, Gary Alexander, testified before a Congressional committee last month that the expansion would cost $222 million to the state taxpayers in administrative and other costs during the first year, $378 million the second year and $364 million the third year, rising to an estimated $883 million by fiscal year 2020-21.

Even that is not the end of the story regarding the open-ended nature of taking part in the Medicaid expansion. President Obama indicated in his 2013 budget that the federal government may renege on its 90 percent payment promise putting Pennsylvanians on the hook much more than the estimated $2.8 to $4 billion cost for the expansion. Given the current fiscal realities in Washington, a decrease in the matching amount is an almost certainty. Given the current fiscal realities in Harrisburg, this new financial burden on the state’s already stretched thin budget is something Pennsylvania cannot afford without further putting the pinch on educating our youth along with other crucial spending needs in the state, which have had to undergo hundreds of millions of dollars in spending cuts in recent years to balance the budget.

The real white elephant in the room is that the Medicaid program is broken. Even with its high cost, Medicaid on average pays 55 cents for every dollar compared to private insurance, which is even worse than Medicare, which pays 77 cents on the dollar.  Many doctors reject the Medicaid patients outright due to the underpayments and thousands of pages of regulations. According to a study in the Journal of Health Affairs from August, 32 percent of Pennsylvania’s doctors will not even accept new Medicaid patients.

Medicaid can be fixed, but is going to require the federal government to give the states more flexibility, which is what Governor Corbett has requested in a letter to Health and Human Services Secretary Kathleen Sebelius last month. A few states have been granted waivers including to Indiana, which established health savings accounts for Medicaid recipients: a free market reform proven to help lower costs. The best fix to the 50-year-old program would be for all the states to have their Medicaid funding block granted (as was successfully implemented with welfare reform in the 1990s) with no strings attached, and no illusory promises from the federal government. Then Pennsylvania and other states will be able to innovate and find the best, most cost effective ways to cover those in need of medical coverage.

Rather than doubling down on failure, Pennsylvania should not expand the Medicaid program beyond the nearly 20 percent of its population already covered. Let’s not make an open-ended promise Pennsylvania cannot keep to a program badly in need of a cure.

Randall DeSoto is the policy director for Americans for Prosperity-Pennsylvania.

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