by Jordan Roberts

Amid the pandemic, state lawmakers and liberal advocacy groups continue a push to expand Medicaid, as allowed by the Affordable Care Act. Since the U.S. Supreme Court ruled Medicaid expansion is optional, state lawmakers have decided against moving forward with the policy.  

Expansion proponents say the state won’t have to pay anything, and that such a policy should be uniformly supported. But a careful consideration of Medicaid expansion funding shows the program is anything but free for residents. 

One must begin with the financing structure of Medicaid. Just like benefits for the typical Medicaid population, the expansion population is jointly funded by federal and state governments. Starting in 2020, the federal government pays 90% of the program’s cost, leaving the state with the remaining 10%. 

To fund the state share of the program, the state’s expansion advocates have proposed using a tax on hospitals and other providers for that 10%. Using a provider tax to pay for the state share of expansion gives the illusion of no cost to the state. Money flows from hospitals to the state general fund disguised as a tax. Then, the state turns around and sends that same money back to the same providers in the form of supplemental payments. These payments are then rewarded by federal dollars at a ratio of 9:1. Provider taxes shift the actual costs of the program to the federal government’s ballooning debt. 

Of course, more state money could be needed if the program’s costs more than projected. Chances of cost overruns are high because Medicaid is an open-ended entitlement — anyone who qualifies for the program must receive benefits. Research shows taxpayers have spent 157% more on Medicaid expansion in other states than first projected. If North Carolina expands Medicaid, it must accept the additional costs that come with it. 

Equally important is a common claim that expansion would just reclaim tax dollars North Carolinians are sending to other states. This claim misunderstands the way Medicaid is financed. There’s not a magic pot of money sitting in Washington, D.C., funded by all states and divided between the states that expanded Medicaid.

Architects of the ACA advertised it as a deficit–neutral bill. Even though many of the taxes to fund the bill were never implemented, the federal government, which funds 90% of the costs, was already running nearly $1 trillion yearly deficit before the pandemic. The deficit has swollen to $3.4 trillion. All the money taxpayers send to D.C., and more, is already spent on upon arrival. 

North Carolina wouldn’t be reclaiming tax dollars going to other states with expansion. We’d just be increasing the federal deficit. There’s no money in Washington for North Carolina to bring home; we’re borrowing from future generations. Plus, higher federal debt has consequences for the larger economy. 

Not only will North Carolinians pay for the expansion through the consequences of exorbitant federal debt, Medicaid expansion also is likely to make health care prices higher here. Fewer people with private insurance along with an influx of Medicaid reimbursements are the root cause. Expanding Medicaid in North Carolina would crowd out private insurance. Some covered privately would drop this coverage and sign up for Medicaid, meaning the risk pool for private insurance and the share of private insurance payments to providers would shrink. Private insurance pays far higher rates than Medicaid for the same services.  

As Medicaid enrollment grows and private insurance enrollment shrinks, both insurers and providers are likely to raise prices. Other states have documented this phenomenon. 

By using a clever accounting scheme, which has been abused for decades, expansion advocates can claim the state won’t spend any money on expansion. But Medicaid expansion will be paid with deficit spending at the federal level. At the state level, lawmakers are trying to disguise the costs by passing them to the federal government. Medicaid expansion will further distort the health care market and probably cause private prices to rise.  

If you think the idea that North Carolinians won’t owe a cent for Medicaid expansion is too good to be true, it’s because that it is.  

Jordan Roberts is health policy analyst for the John Locke Foundation

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