Ohio Governor John Kasich (R). English: (Photo credit: Wikipedia)
Earlier this week, Ohio’s Republican governor, John Kasich, announced that his budget would endorse Obamacare’s dramatic expansion of Medicaid, America’s deeply flawed, money-losing health care program for the poor. Kasich’s decision, hailing from a large swing state, has enormous ramifications for both the politics and policy of health care reform. But what nobody is talking about is how expanding Medicaid will further increase premiums for people with private insurance, and further weaken the financial condition of Ohio’s hospitals.
Kasich collaborated with progressive activists
Sarah Kliff of the Washington Post has the scoop: “The governor’s office,” she reports, “reached out to stakeholders and asked them to do some of the heavy lifting: Making the economic case” for the Medicaid expansion so that Kasich could minimize blowback from conservatives. “The governor’s office said that, if this is going to happen, I need to see that I’m not going to get creamed by the legislature. So it was very clear what we had to do,” said Cathy Levine of the Universal Health Care Action Network, a union-backed pro-Obamacare activist group.
Levine and UHCAN worked on an economic analysis published by the Health Policy Institute of Ohio, and was “in regular contact with the governors’ office [so] as to ensure they would all land near the same place.”
The maneuvering worked. In his proposed budget for fiscal years 2014 and 2015, Gov. Kasich writes that expanding Medicaid “not only helps improve the health of vulnerable Ohioans…but it also helps prevent increases to health care premiums and potentially devastating impacts to local hospitals. Additionally, it avoids leaving Ohioans’ federal tax dollars on the table and keeps the federal government from simply giving them away to other states.”
Kasich’s misleading budget memo
Obamacare is deliberately set up to give states a powerful disincentive to resist its implementation—what Chris Conover calls a “Sophie’s Choice”—because the federal government is funding most of the Medicaid expansion. If Ohio says “no” to the Medicaid expansion, but New York says “yes,” then as Kasich notes, Ohioans’ tax dollars are being diverted to benefit other states. However, the reverse is also true: by saying “yes” to the expansion, Ohio is taking money from the taxpayers of other states that continue to refuse to expand Medicaid.
But it's the first sentence in Kasich’s quoted statement—the part about improving health and reducing premiums—that is the most misleading.
Medicaid has terrible health outcomes, because Medicaid pays Ohio doctors roughly half of what private insurers pay, a ratio that is getting worse over time. This is why 28 percent of Ohio’s office-based physicians refuse to accept new Medicaid patients, another figure that is getting progressively worse.
In addition, the Medicaid expansion will drive up premiums for other Ohioans, because hospitals will make up for the costs of Medicaid’s underpayments by charging more to people with private insurance: a phenomenon known as “cost-shifting.” More on that in a minute.
Hospitals lose money on every Medicaid patient
Another huge factor in Kasich’s decision to expand Medicaid was the support of the powerful Ohio hospital lobby. For many years, the Medicare program has made payments to hospitals, called Disproportionate Share Hospital payments (DSH), in order to compensate hospitals for taking care of the uninsured, because Medicare mandates through the EMTALA law that hospitals provide emergency care to everyone, including illegal immigrants, regardless of their ability to pay. The feds made $11.3 billion in such payments in 2011.
On October 1, 2013—the beginning of the 2014 fiscal year—Obamacare cuts those DSH payments by 75 percent. Obamacare’s authors were very clever to slash DSH payments, as it gave the hospital industry—the most heavily government-subsidized industry in America—an incentive to lobby states to expand Medicaid. “Ohio hospitals strongly support the responsible implementation of Medicaid expansion,” said Ohio Hospital Association president Mike Abrams in an August 2012 statement.
If the Medicaid expansion goes through, however, hospitals’ ebullience will be short-lived. For every dollar that Ohio hospitals spend caring for Medicaid patients today, Medicaid pays 83 cents. In other words, these hospitals lose 17 cents for every dollar they spend on a Medicaid patient. That amounted to a total of $1.3 billion in Medicaid-driven losses in 2010: significantly more than Ohio hospitals spent on uncompensated charity care.
And hospitals are deluding themselves if they think Medicaid’s reimbursement rates will increase over time. With the expansion, Ohio will spend 54 percent of its budget—and 32 percent of state tax revenue—on health care, crowding out other essential state services. One of the only options the state will have to control future spending is to lower hospital reimbursement rates. It’s the classic economic joke: Hospitals will care for Medicaid patients at a loss, but will try to make it up on volume.
The consequence will be rising insurance premiums
Except it’s not a joke, because the consequences are quite serious. Hospitals will try to make up for their mounting Medicaid losses by charging higher rates to people with private insurance. In 2008, Milliman, the leading insurance consulting firm, estimated that the average American family with private health insurance paid $1,800 extra, because of Medicaid and Medicare’s underpayments to providers. With the number of people on government-subsidized insurance set to double, cost-shifting is destined to go up. And that’s on top of the 55 to 85 percent that Obamacare will increase premiums in the non-group market.
But hospitals won’t be able to get away with that forever, because rising premiums are driving more and more employers to drop health coverage, driving more workers onto Medicaid and, eventually, the Obamacare exchanges, where hospitals will also get paid less. In addition, as the Baby Boomers retire, more and more people will be on Medicare instead of private insurance. In an updated analysis, Milliman’s Doug Proebsting writes, “Hospitals that continue shifting costs rather than pursuing efficiency are likely to find they have run out of options to remain profitable.”
So far, much of the debate about Obamacare’s reckless expansion of Medicaid has been driven by the ideological debate between single-payer activists and limited-government types. But the real problems are that Medicaid provides terrible health coverage to the people it is intended to serve, while making health insurance even less affordable for average Americans. That John Kasich has endorsed this outcome is to his discredit.
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UPDATE 1: In the comments, we discuss an important misconception regarding the amount of uncompensated care that Ohio hospitals pay for. Sarah Kliff writes that "Ohio has 1.5 million uninsured residents, about 14 percent of the state population. Those individuals have to find health care somewhere: The Ohio Hospital Association estimates that it spent $2.5 billion on uncompensated care in 2009, the most recent year for which data is available."
Sarah implies that the $2.5 billion in uncompensated care is driven by the uninsured. However, this isn't true. The OHA counts $1.3 billion in Medicaid underpayments as "uncompensated care," understandably causing her to misstate the figure.
The OHA claims only $1.1 billion in charity care for the uninsured, but does not break out the percentage of that charity care that was given to "woodwork" individuals who were eligible for Medicaid, pre-Obamacare, but never bothered to sign up. As the chart below describes, a full third of Ohioans who were eligible for Medicaid, pre-expansion, have not enrolled in the program.
UPDATE 2: A spokesman for the Health Policy Institute of Ohio e-mails to say that the economic analysis to which Cathy Levine of UHCAN says she participated in was "a partnership of the Health Policy Institute of Ohio, the Ohio State University, the Urban Institute and Regional Economic Models, Inc."
UPDATE 3: Robert Alt and Greg Lawson of the Buckeye Institute have published a thoughtful brief that highlights several flaws with the fiscal rationale for the Ohio Medicaid expansion.
