Devon Herrick

Consider this: nationally, less than one-third of physicians accept new patients enrolled in Medicaid. This is nearly double the rate of doctors who have closed their practices to new Medicare patients (17 percent) and to new privately insured patients (18 percent). Physicians are four times more likely to turn away new Medicaid patients than those with no insurance (31 percent versus 8 percent).

On paper, Medicaid appears far better than the health plans most Americans enjoy -- with lower cost-sharing and unlimited benefits. But by almost all measures, Medicaid enrollees fare worse than similar patients with private insurance. For instance, post-surgical individuals enrolled in Medicaid are almost twice as likely to die as privately insured patients and about 12 percent more likely to die than the uninsured, according to a University of Virginia study.

Another problem policymakers should worry about is that many of the newly insured under Medicaid will be those who previously had private coverage. Crowd-out is a condition where people who are already covered by employer or individual insurance drop that coverage to take advantage of the free public option. Analysis of past Medicaid expansions by the economists and Obama administration advisers David Cutler and Jonathan Gruber found that when Medicaid eligibility is expanded -- in some cases -- half of newly enrolled had previously been privately insured. Estimates vary, but reasonable projection shows that Medicaid rolls might rise by 1.4 people in order to reduce the uninsured by 1 person, forcing taxpayers to fund costs previously covered by companies and individuals.

Proponents often tout the benefits of so-called “economic activity” that additional federal Medicaid funds might create within states. Yet, economists find it difficult to calculate the actual value of economic activity. Balanced-budget multipliers show such increases negatively affect national economic output. If correct, these results suggest that the net effect of the new health law will be that GDP stalls or declines as the federal government pulls more revenues from citizens to fund its programs. Basically, consumers will cut back consumption elsewhere to pay for the increased tax burden.

Nationally, Medicaid comprises more than one of every five dollars spent by state budgets and is growing at an unsustainable rate. States would be better served to encourage uninsured residents living just above poverty to instead enroll in subsidized private coverage through the exchange. States collectively would benefit from about $20 billion per year in additional medical funding from private insurers compared to what Medicaid would have reimbursed doctors and hospitals for treating Medicaid enrollees earning 100% to 138% of poverty.

For families earning less than 100 percent of poverty, states should tailor their Medicaid programs in ways that fit states’ unique needs. This might include selectively covering some optional populations but not others. A tailored Medicaid program might also involve providing limited benefits rather than open-ended entitlements. Regardless of how a program is tailored, some (if not all) of the additional spending would likely qualify for federal matching funds — albeit at a rate of about 60 percent rather than 90 percent. Each state’s respective Medicaid program should be designed with state taxpayers’ preferences and priorities in mind rather than a one-size-fits-all program designed by Washington politicians.


Devon Herrick

Devon Herrick is a health economist and a senior fellow at the National Center for Policy Analysis (NPCA).