The Medicaid Expansion's Forgotten Flaw

Republicans in Congress have become ensnared in a politically tough battle over what to do with Medicaid, but they may want to look at this one detail.


Win McNamee/Getty

The Republicans in Congress now debating the fate of the 2010 Affordable Care think that just about everything is wrong with it.

However a major revelation to me as I watch the GOP tussle with repeal-and-replace is that the authors of the 2010 ACA and the decisions by the Obama Administration these last seven years have constructed a system that deliberately slights the least among us in favor of the able-bodied.

Medicaid serves those at or near the poverty line who are generally single mothers, children under six years old, children from six to 18 in needy familes, the disabled, or the elderly poor.

The 2010 ACA offered a Medicaid expansion population that described adults who are not disabled, not elderly, not parents, and who are 100-138% of the poverty line.

The astonishing inequity in the ACA is that it compensates the states for the Medicaid expansion population at 100%, while compensating the states for the historical Medicaid population at only 57%.

“Basically we have a bizarre situation,” Charles Blahous of the Mercatus Center and Hoover Institution told me recently, “where, if you are a childless woman above poverty, you are getting 100% support basically from the Federal government. But your pregnant sister is only going to get 57% (of the funds reimbursed to your state from the Federal government). Or an able-bodied adult above poverty is getting 100% -- but the disabled adult in poverty is only getting 57% (of the funds reimbursed to his or her state from the Federal government),”

How did this amazing upside-down situation come about?

“I think there is a general perception,” Blahous answered, “because Medicaid is a program for poor, vulnerable people, there tends to be an equation between expanding Medicaid and doing more for people in need. But instead what’s happening is that we are doing much more, or at least the government is, for people who are less in need, and doing much less for people who are more in need.”

I learned that lawmakers and the Obama Administration created this formula – what is called an “inflated match rate” – in order to encourage more states to expand their Medicaid populations regardless of the illogic.

“This inflated match rate has induced states to make far different decisions about who should be covered,” Blahous observed, “and where the resources should be prioritized, than they would otherwise be making.”

One consequences of this construction is that, while Medicaid enrollment has increased 20% in the years 2013-2016, there is no data to show a comparable increase in medical facilities or practices that welcome Medicaid patients. Blahous commented ruefully, “Certainly you would expect there to be a problem in access given this surge.”

Even more confounding is that the expanded Medicaid population has proved more and more expensive over the years.

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Blahous described the original thinking of the actuaries who analyzed the ACA’s Medicaid expansion: “We think it will cost less per person to cover these folks then the people who are on the rolls already. These aren’t people who are pregnant. They are people with somewhat higher income…. They are able-bodied…”

Instead, Blahous explained, “But because of the warped incentives of the Affordable Care Act, they have wound up costing a lot more.”

In 2013, the estimate was that by 2015 it would cost less than $4000 annually per person to cover the expanded population.

“By last year’s report,” Blahous reported, “the look back at 2015 had them spending over $6350 per person. So it was an increase of about 60% over what they originally projected.”

There was a much starker discovery. Blahous observed, “More money is being spent on the expansion population than on the historically eligible population. Which just simply does not make sense for the relative health needs of the different populations.”

I asked for an explanation of how it is possible for the ACA to spend more on a young worker who earns some money than a single mother or a disabled person who earns none?

“Their original explanation” Blahous replied, speaking of the ACA experts, “was that this was pent-up demand. The expansion population – the sickest people went on the rolls first. And then, later on, they would be followed by a healthier population. And the cost would come down.

“But then the next year happened, and the costs didn’t come down, and they continued to go up,” Blahous added, “and so it becomes apparent that what happens with the inflated match rate is that it induces states to set payment categories and capitation rates that are much higher than they ever would be.”

Searching for logic in the face of such numbers, I asked if the states were providing additional services for the able-bodied young?

Blahous closed with the limits of understanding of what the 2010 ACA has created, “They are categorizing these people as having – the phrase is higher acuity and morbidity. Basically, they are needing more intense health services, you know, they are at greater risk of dying. Basically they are being thrown into these higher risk health service categories. The specifics of why that is happening, why they are being put into these more expensive categories I don't know. But that is what is happening.”

The repeal-and-replace debating and voting in the GOP Congress may or may not turn on continuing the Medicaid expansion population.

But surely there must be careful attention to the unacceptable illogic of slighting the most vulnerable population in the United States – all because of the peculiar political needs of the Obama Administration and the Democratic-majority Congress 2009-2011 that made Obamacare the law of the land.