Enrolling Americans in Medicaid Is Now Cheaper Than Subsidizing Their Obamacare Coverage

WASHINGTON, DC - MARCH 22:  Health care activists participate in a rally in front of the Capitol March 22, 2017 on Capitol Hill in Washington, DC. Senate Democrats held the rally to highlight changes being sought in Medicaid in the Republican American Health Care Act.  (Photo by Alex Wong/Getty Images)
Seriously. Alex Wong/Getty Images

Here’s a data point that I fully expect to see fans of single-payer health care cite in the future: For the federal government, helping Americans buy private insurance under Obamacare is now more expensive per enrollee than simply covering them through the law’s Medicaid expansion.

That’s according to the most recent estimates from the Congressional Budget Office, which were highlighted Wednesday in an article by Susannah Luthi of Modern Healthcare. This year, Capitol Hill’s official scorekeeper predicts that Washington will spend an average of $6,300 on each individual who purchases subsidized health insurance through the Affordable Care Act’s exchanges. Meanwhile, it’s set to spend just over $4,900 for each Medicaid recipient who enrolled thanks to the law’s expansion of the program.1

That wedge will only widen in the coming years, according to the CBO. By 2028, the federal government will be spending 57 percent more, on average, to cover people who purchase subsidized coverage on the exchanges than it will paying for people’s Medicaid benefits. Even if you include state spending, signing up folks for Medicaid will still be cheaper for taxpayers than helping to foot the bill for private insurance.

Cost of subsidizing coverage on Obamacare's exchanges vs. enrolling Americans in the Medicaid expansion

It is possible that the CBO is overestimating how high premiums on Obamacare’s exchanges will rise in the coming years. If they increase less dramatically, the cost gap between Medicaid and private coverage won’t be as severe. Nonetheless, the prognosis looks bad for the marketplaces, at least from a budget perspective.

Why are these numbers important? If Democrats ever return to power in Washington, it seems all but certain that the party will try to pass some sort of legislation extending health insurance to more Americans. As of now, most of the policy conversation around this possibility has tended to focus on the merits of single-payer, or bills that would greatly expand Medicare without immediately lumping everybody into it. One alternative to those approaches, which some Democratic moderates might embrace, would be to super-size Obamacare instead, by making more Americans eligible for private insurance subsidies through the law. (Currently, subsidies are only available to families that make up to 400 percent of the poverty line.)

But there’s an obvious problem with that strategy, which this new report highlights: Compared to Medicaid, private insurance subsidies just aren’t very cost-effective. You get a lot more bang for your federal buck by herding people into government coverage.

That’s not exactly a shock. Medicaid keeps costs down by paying fairly low rates to providers—far below than what most private insurers can manage. Obamacare’s exchange coverage, on the other hand, tends to be pretty expensive before subsidies, and the federal government picks up most of the tab for the lower-income families that buy it. When the Congressional Budget Office originally scored the Affordable Care Act in 2010, they expected that, per enrollee, the cost of subsidizing private coverage would pull roughly even with the cost of the Medicaid expansion this year. In 2011, they revised their calculations a bit, and concluded it would actually become more expensive around this time. (They projected the average subsidy would be $6,120, which is remarkably accurate, given all the grief the CBO gets for missing its initial enrollment estimates.)

It’s true that marketplace coverage would probably cost less were it not for Donald Trump and the Republican Party’s attempts to sabotage the exchanges. One reason the CBO expects subsidy costs to rise so much in the coming years, for instance, is that Congress repealed Obamacare’s individual mandate, which was supposed to keep premiums lower by making sure more healthy Americans purchased coverage to make up for all of the sick customers insurers were required to enroll. But the current White House isn’t entirely to blame for the price of private insurance under Obamacare. The cost of subsidies pulled more or less even with per-capita Medicaid spending last year, before Trump’s campaign to undermine the law really hit its stride. Private insurance has just turned out to be kind of expensive—as the CBO predicted.

That wouldn’t necessarily be a strike against the exchanges if private coverage was significantly better than Medicaid. But it isn’t always. Some of the most popular (meaning, cheaper) offer narrow doctors’ networks just like Medicaid, but stick patients with far, far higher co-pays and deductibles. Overall, Medicaid enrollees also appear to be a bit more satisfied with their coverage than people who buy insurance on the exchanges. When it comes to exchange coverage, it seems like the feds are paying more for less.

So what’s the takeaway here? You might look at the CBO’s numbers and assume that the government would save money by further expanding Medicaid instead of paying for private coverage. That’s not necessarily true. After all, many people who are eligible for Obamacare don’t necessarily sign up. A lot of those folks would enroll in Medicaid if it were offered to them for free, or cheap, possibly leading the government to spend more overall compared to the current system.

But again, Medicaid is more cost-efficient than private insurance. And if your goal is to provide insurance to every single American, then efficiency is what matters. It’s possible that, if Medicaid were to be expanded further, Congress would have to increase its payment rates to doctors, which are even well below Medicare’s. But if you believe the CBO’s numbers, Medicaid is going to be so much cheaper than private insurance going forward that it could pay providers more and still save the government money.

And this brings us back to why I think fans of single-payer are eventually going to tout this new report. It turns out that Obamacare is offering us a real-world test run, pitting the value of public insurance against private coverage. When it comes to the federal budget, government coverage is pretty clearly winning.

1 Modern Healthcare states that “Medicaid spends $4,230 per non-disabled adult” without citing a source. According to the Kasier Family Foundation’s most recent data, which is current through FY 2014, the federal government and states combined spent $3,278 per non-disabled, non-elderly adult in Medicaid. Larry Levitt, the think tank’s senior vice president for health policy, told me he wasn’t sure where Modern Healthcare would have gotten its number. I arrived at my figure by dividing the CBO’s projected spending on the expansion population by projected enrollment, which Levitt told me was a reasonable way to make the estimate.