Moneybox

Democrats Should Expand Medicaid Again

Chris Murphy stands at a podium outside the Capitol with advocates standing behind and beside him.
Sen. Chris Murphy speaks during a news conference on health care on April 30 on Capitol Hill. Alex Wong/Getty Images

For all of the time Democrats have spent spelling out elaborate plans for health care reform during this presidential election, the candidates have paid relatively little attention to Medicaid, the insurance program for low-income and disabled Americans. Aside from Amy Klobuchar, who wants to let people buy in to it, Democrats have spent much more time and energy on ideas like creating a new public option (Joe Biden, Pete Buttigieg, sort of Elizabeth Warren) or single payer (Bernie Sanders, sort of Elizabeth Warren) than they have talking about ways Washington could extend Medicaid’s reach.

This seems like an oversight. Medicaid has proved to be both well liked by voters and relatively inexpensive to run. Expanding it further might be one of the most popular and fiscally responsible ways to offer more affordable coverage for lower-income families.

Medicaid enjoys wide public support. Three-quarters of adults view the program favorably, and while many Republican governors and legislatures, especially in the deep South, have refused to expand it through the Affordable Care Act, they’ve lately been overruled by their own voters. Residents of Nebraska, Utah, and Idaho—all bastions of conservatism—have gone over their elected leaders’ heads and passed ballot initiatives approving a Medicaid expansion. Meanwhile, Kansas now looks poised to become the 38th state, including D.C., to join in, thanks to a deal that its newly elected Democratic governor and Republican Senate leader struck this week. It’s just the latest reminder that Americans like Medicaid, even in Trump country, and want more people, perhaps even themselves, to have access to it.

At the same time, Medicaid is extremely cost-efficient, as far as health care programs go. Because it pays doctors and hospitals lower rates than Medicare—and far, far lower rates than private insurance—it manages to provide comprehensive coverage at a relatively low price to the government. This is despite the fact that beneficiaries pay either nothing or close to nothing for their care. (Some states impose nominal co-pays on nondisabled adults, and a few have experimented with small premiums.)

How cheap is Medicaid to operate? Consider this comparison. The Congressional Budget Office currently projects that the federal government will spend an average $5,500 in 2020 for each Medicaid enrollee made eligible by the ACA expansion. In contrast, it is expected to spend $6,625 on average for each American who receives subsidized insurance coverage through the exchanges, which unlike Medicaid comes with significant premiums, co-pays, and deductibles. That gap is only expected to grow in the future.

The cost of the Medicaid expansion versus the cost of Obamacare subsidies
Source: Author’s calculations based on the Congressional Budget Office’s Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2019 to 2029. The CBO forecasts annual federal spending and enrollment in each major government health care program over the next decade. This graph is derived by dividing projected spending on the Medicaid expansion and Obamacare exchange subsidies by the number of beneficiaries of each Jordan Weissmann/Slate

The federal government does not actually pay the entire cost of Medicaid—states chip in too, which is why they have an incentive to manage it frugally. But even if you count state and federal dollars combined, the CBO’s forecasts still suggest that the government will spend less per head on the Medicaid expansion than it will subsidizing insurance on the ACA’s exchanges. If the feds took every single person who gets a tax credit to buy private Obamacare coverage and paid the full cost of enrolling them in Medicaid instead, it would probably save a few billion dollars per year.

Keep in mind, we’re talking about averages, which obscure some important nuances. Today, poorer Americans get a lot of financial help to buy private coverage under Obamacare, while higher-earning households receive much less. That means the government could save a lot of money moving low-income families into Medicaid but would likely be better off continuing to subsidize private coverage for much of the middle class.

So, with that in mind, why not expand Medicaid to cover more low-income Americans when it comes time for the next round of health care reform? The Affordable Care Act made adults who earn up to 138 percent of the federal poverty line eligible in expansion states. Why not raise that cutoff to 175 percent for people who can’t get affordable coverage through work? Or even 200 percent? The federal government could cover the entire cost, and thanks to Medicaid’s lower expenses, it would still likely be cheaper per head than subsidizing private coverage, or even enrolling people in the sort of public option that candidates like Buttigieg and Biden seem to be envisioning. Plus, the care would be free, or near free, for families that signed up.

Sounds great, right? Now let’s get to the arguments against doing it.

Some might worry that red states wouldn’t go along with the plan, even if Washington offered to pay for the whole thing. After all, more than a dozen states have refused to expand Medicaid under the Affordable Care Act. And while their Republicans leaders usually cite concerns about cost, some of their reluctance also seems to be rooted in an ideological opposition to extending the government’s role in health care. So let’s assume there would be some holdouts. Even then, it would still be worthwhile to let more people sign up for Medicaid in states like California where it has strong political support. Meanwhile, the federal government could still offer a premium-free version of the public option to the low-income residents of states that haven’t agreed to expand Medicaid, which is what Biden and Buttigieg are planning to do anyway.

Others might argue that Medicaid coverage simply isn’t very good, and so we should offer lower-middle class workers something better. Critics of the program often point out that many doctors don’t accept new Medicaid patients, because the payment rates are so low, which leaves enrollees with limited options for care. But these criticisms are often overblown: Medicaid beneficiaries are just about as satisfied with their insurance as workers covered by their employers and appear to have no more trouble getting care than low-income adults with private health plans. And if we’re really worried that people won’t like Medicaid, we could let them pick between it, private insurance, or the public option. Give families a choice.

Any effort to expand Medicaid would obviously face political challenges. Doctors and hospitals would probably hate the idea and lobby against it, since they’d be paid more by private insurance. If it passed, they might also beg states to increase their Medicaid reimbursement rates, which would erase some of the program’s cost savings. But so what? This country desperately needs to control its health spending while expanding coverage, and providers will probably fight like maniacs against any reform that threatens their pay. There’s no reason to preemptively rule out a Medicaid expansion just because it could face some pushback.

The one real danger I could see to further expanding Medicaid is that it might overload the program. Critics tend to exaggerate the problems patients face accessing care now. But given that there is a limited pool of doctors who are willing to accept Medicaid, enrolling many more people in it could potentially make those issues worse. That said, there might also be reasonably inexpensive ways to alleviate a lot of those problems, like paying primary care doctors a bonus for taking more Medicaid cases. You also have to balance the hypothetical possibility that you’ll bog the program down with Medicaid’s very real cost advantages for the government and the obvious fact that a lot of people would be very happy with potentially free, or near-free, coverage that amply protects them in case they get sick or injured.

As long as Washington is judicious about it, expanding Medicaid could be a popular, fiscally prudent move. The program is efficient, it’s well-liked, and building it out would be a straightforward, inexpensive way to get more lower-income Americans insured. It’s not a fix for all our health insurance woes, but the idea deserves more attention than it’s received.

1 Unfortunately, I couldn’t find a formal cost estimate of increasing the Medicaid cutoff to 200 percent of the federal poverty line, and couldn’t come up with a reliable ballpark estimate on my own. But given Medicaid’s per-capita costs, experts I’ve spoken with have told me it’s safe to assume it would be cheaper than subsidizing more private coverage.