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Overview of Health Insurance Coverage in Texas — Testimony of Brian C. Blase [1]
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Date: 2024-05-14 12:00:42+00:00
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Good morning, Chairwoman Kolkhorst, Vice-Chairman Perry, and senators on the committee. Thank you for inviting me to participate in this hearing. My name is Brian Blase, and I am the founder and president of Paragon Health Institute, a health policy research center dedicated to empowering patients and reforming government program. I am also a visiting fellow at the Foundation for Government Accountability (FGA). From 2017 through 2019, I served as a Special Assistant to the President for Economic Policy at the White House’s National Economic Council. You have vital jobs serving the people of the great state of Texas, and it is an honor to testify before the Committee today on this important topic. My testimony today represents my views alone.
I’m here to discuss several issues concerning the Affordable Care Act’s Medicaid expansion, and specifically how expansion has harmed access to care for traditional Medicaid enrollees, caused enrollment and spending to soar, put states at great financial risk, and has not improved population health outcomes. In this testimony, I will provide a brief background of the issue at hand, discuss the findings from Paragon’s comprehensive case study of the effects if Florida were to expand their Medicaid program, share lessons from states that have previously adopted Medicaid expansion, highlight the implications of Medicaid expansion in Texas, and provide an overview of some reforms the state should consider to empower patients and reform government programs.
If Texas were to expand Medicaid, we estimate the state’s Medicaid enrollment would increase by more than 3 million recipients with two-thirds of them replacing private coverage with Medicaid. Nearly 1.9 million exchange enrollees would replace an exchange plan, where the state bears no cost, with Medicaid, where the state would bear 10 percent of the cost. Medicaid enrollment would increase from about 13 of the state population to about 23 percent if the state adopts Medicaid expansion. And the ratio of workers per Medicaid recipient would decline from 3.4 workers per recipient to 2.0 workers per recipient. We estimate the fiscal cost to the states would be nearly $2 billion a year over the next decade.
Background of Medicaid Expansion
The Affordable Care Act contained a significant Medicaid expansion to able-bodied, working-age adults in households with income below 138 percent of the federal poverty level (FPL). Thus far, 40 states, plus the District of Columbia, have adopted this expansion since it took effect in 2014. The federal government reimburses 90 percent of state expenditures on the expansion population, a much higher rate than what the federal government reimburses state expenditures of traditional enrollees such as low-income children, pregnant mothers, seniors, and individuals with disabilities. If states adopt expansion, they accept a financing structure that discriminates against the most vulnerable people in the state and favors able-bodied, working-age adults.
In 2020, Medicaid was the largest item in state budgets and accounted for nearly 30 percent of total state expenditures. Between 1988 and 2021, inflation-adjusted state expenditures increased by 175 percent, while Medicaid spending increased by nearly 600 percent. During that period, 35 percent of the growth in total state expenditures was driven by Medicaid.
Between 1991 and 2021, inflation-adjusted Medicaid spending grew by 468 percent in Texas. During that time, 36 percent of the growth in total Texas state expenditures was driven by Medicaid. Medicaid growth puts pressure on states and takes away from education and infrastructure priorities.
Summary of Paragon’s Research on Effects if Florida Were to Expand Medicaid
Paragon has conducted extensive research on this issue, including a research paper on the effects of Medicaid expansion for Florida that my colleague Drew Gonshorowski and I authored. Our findings for Florida provide important context for what would happen if Texas adopted Medicaid expansion.
The actuarial consulting firm Milliman provided estimates of projected enrollment and spending if Florida were to adopt Medicaid expansion. According to Milliman’s estimates, enrollment in Medicaid would increase by 47 percent under mid-range estimates and 60 percent under high-end estimates by the end of this decade. This many additional Medicaid expansion enrollees would bring total Medicaid enrollment to between 28 and 30 percent of the state’s population. Of those who would gain Medicaid, 65 percent of them would simply replace private coverage with welfare. ,
According to Milliman’s mid-range estimates of Medicaid expansion in Florida, the 10-year total cost would be $123 billion, with state costs of $11.1 billion. Using the Congressional Budget Office’s growth rate assumptions for per capita Medicaid costs, which is significantly higher than what Milliman assumes, the 10-year total cost would be $176 billion, including $17.2 billion in state costs. ,
Under the mid-range and high estimates, total Medicaid spending would increase by 30 percent and 43 percent, respectively, in Florida by the end of the decade. The mid-range estimate of the state share of expansion costs would be around $1.5 billion, equivalent to about 2.6 percent of the Florida budget, and the high estimate of the state share would be $2.0 billion, or about 3.5 percent of the budget. In Florida, Medicaid spending would increase from 31 percent to 40 percent of the state’s budget—a dramatic rise from the 9 percent of state spending that went to Medicaid in 1988. ,
Funding the expansion would be a challenge, requiring either an increase in state sales tax or cuts from other crucial state programs such as education, infrastructure, or transportation. If funded by an increase in Florida’s sales tax, it would need to rise from 6.0 percent to about 6.4 percent.
If Florida adopted Medicaid expansion, the ratio of Florida workers to Medicaid recipient ratio would fall from 2.5 workers per recipient to 1.6 workers per recipient with the mid-range assumptions and 1.5 workers per recipient with the high range assumptions—an indication of the magnitude of the growth in the welfare state that occurs when states adopt expansion.
Medicaid expansion states are particularly vulnerable to any change in federal fiscal policy that would reduce the amount of money that states receive from Washington. When Congress pursues measures of long-term deficit reduction to address the rising debt and federal interest payments, lowering the federal medical assistance percentage (FMAP) for the Medicaid expansion population—as previously proposed by President Obama’s 2012 budget and included in legislation passed by the House of Representatives in 2017—will likely be considered. For Florida, if the current expansion FMAP of 90 percent is lowered to Florida’s standard FMAP of around 60 percent, Florida’s projected Medicaid expansion would create a fiscal risk of $40.5 billion over 10 years.
Lessons from States that Adopted Medicaid Expansion
Here are twelve key lessons from states that have adopted the ACA’s Medicaid expansion:
1. Expansion enrollment was much higher than expected.
States that adopted Medicaid expansion experienced much greater enrollment in the program than expected. CBO reported in March 2016 that “the number of people estimated to have been enrolled in Medicaid in 2015 who were made eligible for the program by the ACA was significantly higher than … previously projected.” In fact, I found in 2016 that enrollment was over 50 percent higher than what CBO expected when the ACA was enacted. A 2018 FGA report found that states enrolled more than twice as many expansion enrollees than they expected. Finally, when comparing Medicaid expansion enrollment projected in 2012 by the Urban Institute for 2022 with actual enrollment from February 2020, enrollment across expansion states exceeded projections by 52 percent.
2. Expansion spending was much higher than expected.
The high number of expansion enrollees led to higher spending. Expenditure data from April 2019 to March 2020 shows that spending on Medicaid expansion exceeded the Urban Institute’s 2012 projections for 2022 by 32 percent, and they likely would have been between 40 to 50 percent higher if comparable years were used. Several states experienced spending much greater than anticipated: Alaska (96 percent), California (66 percent), District of Columbia (218 percent), Connecticut (110 percent), Iowa (104 percent), Illinois (81 percent), Maryland (66 percent), Minnesota (114 percent), Montana (67 percent), New Mexico (99 percent), and Washington (333 percent). Additionally, CMS reported in 2018 that Medicaid expansion spending per enrollee was 56 percent higher than what CMS predicted for the same year before the expansion took effect. In its 2018 report, FGA found that the overall cost of the expansion was more than twice what states expected.
3. Expansion led to a surge of Medicaid waste, fraud, abuse, and low-value spending.
Medicaid’s improper payment rate soared with expansion as millions of people were enrolled without proper eligibility reviews. CMS reported that the national Medicaid improper payment rate rose to 21.7 percent in 2020, which was nearly quadruple the pre-ACA rate. , Annual federal improper payments in Medicaid increased from an estimated $14.4 billion in 2013 to $98.7 billion in 2021.
4. Expansion led to a reallocation of services away from existing Medicaid enrollees.
Large Medicaid improper payments are particularly concerning given overwhelming evidence of the low benefit that able-bodied, working-age enrollees receive from the program. According to a 2015 study from economists at MIT, Harvard, and Dartmouth that looked at Oregon’s pre- ACA expansion of Medicaid, “welfare benefit to recipients from Medicaid per dollar of government spending range[s] from about $0.2 to $0.4.”
With Medicaid expansion comes a surge in demand for health care services, and a resulting reallocation of services. The people who suffered the most are existing Medicaid enrollees. Former public trustee for the Medicare and Social Security program Charles Blahous co-authored research in 2022 which found “strong evidence of a shift of financial resources away from certain vulnerable enrollee populations, the most notable being from low-income children” and instead toward non-disabled, working age adults. According to Blahous and Sigaud, “[p]er capita Medicaid spending growth on children in expansion states was less than one-third what it was in nonexpansion states and less than one-quarter of national average per-capita healthcare spending growth.” Medicaid enrollment of the disabled and spending growth rates on the aged also declined in expansion states.
5. Expansion led to a significant crowd-out of private health coverage.
The expansion of Medicaid leads to a decline in private health coverage, which typically has superior access to care. Two main sources of crowd-out result from Medicaid expansion. First, people in households with income between 100-138 percent of the FPL enrolled in an exchange plan would lose eligibility for a premium tax credit and replace the exchange plan with Medicaid. Second, many individuals insured through employer plans would lose that plan and move to Medicaid.
Several studies show that the crowd-out from previous Medicaid expansions was significant. Economists David Cutler and Jonathan Gruber estimated that Medicaid expansion in the late 1980s and early 1990s led to a 50 percent crowd-out, meaning one out of every two people newly enrolled in Medicaid replaced private coverage with Medicaid. Gruber and Kosali Simon estimated a crowd-out rate of 60 percent for expansions for children from 1996 through 2002, while more recent studies find crowd-out ranges from 35 to 43 percent. , As mentioned above, Milliman estimated a crowd-out rate of 65 percent if Florida were to expand Medicaid.
6. Expansion reduced access to care.
While supporters of Medicaid expansion expect that expansion will help people obtain health care, evidence shows that Medicaid enrollees have significantly less access to timely and proper health care services. Medicaid’s historically low physician payment rates have led to many providers refusing to treat Medicaid enrollees, forcing Medicaid enrollees to receive a disproportionate amount of non-emergent care in emergency rooms. Fewer than one-third of Texas doctors accepted Medicaid patients in 2010.
In expansion states, Medicaid recipients have had even greater challenges finding providers to treat them. One post-expansion study found that one-third of primary care physicians do not accept Medicaid patients. A 2015 survey of primary care providers showed that 45 percent of providers were willing to accept new Medicaid patients, compared to 94 percent willing to accept privately insured patients. Medicaid recipients in expansion states experience long wait times, reduced appointment availability, and increased wait times for ambulances, all of which lead to delayed medical care. , According to a 2019 meta-analysis, Medicaid patients were 1.6 times less likely to obtain a primary care appointment and 3.3 times less likely to obtain a specialty appointment than people with private insurance. The study also found that, prior to expansion, Medicaid patients were half as likely as someone with private insurance to get an appointment, while patients were only one-third as likely as someone with private insurance to get an appointment after states expanded.
7. Expansion did not help hospitals.
Hospitals can lose money through expansion, since expansion leads to crowd-out of private insurance that pays 40 percent more on average than Medicaid for services. In a 2023 report, FGA found that Medicaid shortfalls (the difference between the costs of providing the service and the Medicaid payment received) between 2013 and 2016 at hospitals in expansion states grew by roughly 50 percent. Hospital profit margins increased in non-expansion states and declined by 10 percent in expansion states. Nearly 50 hospitals in Medicaid expansion states closed after those states adopted expansion. A 2024 FGA report found that hospital profits increased in non-expansion states and decreased in expansion states between 2013 and 2021, in part because hospital shortfalls grew in expansion states. According to FGA’s estimates, the current Texas Medicaid shortfall would grow from $410 million to $864 million if the state adopts expansion.
8. Expansion caused emergency room use to surge.
Medicaid expansion results in a surge of emergency room utilization for non-emergent care. According to Oregon’s 2008 Medicaid expansion experiment, Medicaid coverage significantly increased emergency room use for non-emergent care. Brookings Institution also found a 20 percent increase in hospital use for newly enrolled individuals after the ACA’s Medicaid expansion, with the increase primarily occurring through emergency room visits for conditions “treatable outside of the emergency department.” A 2018 academic paper assessed Medicaid expansion in California and found a significant increase in emergency department use and spending with the increased utilization being driven entirely by those who replaced private insurance with Medicaid.
9. Medicaid enrollment does not produce clear health benefits to those gaining Medicaid.
According to a study assessing outcomes from 900,000 major operations in the United States, Medicaid patients were twice as likely to die in the hospital as were people with private insurance and 13 percent more likely to die in the hospital than the uninsured. Separately, the 2008 Oregon Medicaid expansion experiment showed that while Medicaid enrollment increased health care utilization, there was no significant improvement in basic measures of physical health such as blood pressure, cholesterol, and blood sugar. The results of the Oregon experiment mirror results from a RAND health insurance experiment in the 1970s and 80s, showing that more generous health insurance leads to more health care utilization but not improved health outcomes.
10. Expansion possibly resulted in negative overall population health outcomes.
Since the public health insurance expansion leads to a surge in demand for care with a relatively fixed supply of care, the resulting reallocation of resources reduces access to care for many other people in the state, particularly existing Medicaid recipients. In Tennessee’s expansion of Medicaid through TennCare in the late 1990s, the expanded program was not associated with much of a change in overall utilization, which shows evidence of a relatively fixed supply of care. After TennCare, individuals reported worse health in Tennessee than in neighboring states, fewer people—women in particular—received regular check-ups, and, despite similar mortality trends among Tennessee and its neighboring states in the pre-expansion period, post-TennCare mortality trends in Tennessee were worse than all eight of the neighboring states.
In a paper I coauthored for the Texas Public Policy Foundation (TPPF) in 2020, I found that mortality for non-elderly adults worsened in expansion states relative to non-expansion states after the ACA’s key provisions took effect. From 2014 to 2017, the first three years of the ACA’s coverage expansion, life expectancy declined across the United States. A contributing factor to these trends could be that Medicaid expansion states experienced a greater increase in opioid related deaths than non-expansion states after 2013.
In the TPPF paper, I did a thorough review of academic papers on the health effects of Medicaid and Medicaid expansion. My conclusion was that large public coverage expansions disappoint for several reasons: uninsured people receive nearly 80 percent as much care as similar insured people, the large crowd-out of superior private coverage, and indirect effects on others such as longer wait times for care.
11. Expansion produced negative incentives for work.
In 2015, the Congressional Budget Office estimated that Medicaid expansion would reduce newly eligible individuals’ participation in the labor force by almost four percent. CBO also projected that the ACA would decrease the labor supply by 0.86 percent, or about two million full-time equivalent workers, in 2025. A study from 2014 to 2016 found that employment was reduced by 1.6 percent in states that expanded Medicaid and a second study found that public insurance reduced employment by 5 percentage points in Wisconsin. , Yet another study found that, in states with expanded Medicaid, older workers were more likely to retire in states that adopted expansion.
12. Expansion led to a windfall for health insurers, the main beneficiaries of expansion.
The surge in Medicaid enrollment and spending drastically increased revenue for insurers participating in Medicaid, as over 70 percent of Medicaid recipients are enrolled in managed care. In inflation-adjusted dollars, Medicaid spending through managed care organizations has quadrupled from around $100 billion in 2010 to $420 billion in 2021. Insurers have fared very well from the ACA’s large subsidies, including Medicaid expansion, with insurer stock prices outpacing the S&P 500 by three times over the past decade.
Enrollment and Cost Implications of Medicaid Expansion in Texas
Paragon’s back-of-envelope estimates suggest that 3.1 million people would be added to Medicaid if Texas were to adopt expansion. This includes 1.9 million low-income people in households with income between 100-138 percent of the FPL who selected an exchange plan during the 2024 open enrollment period. If Texas expands Medicaid, these individuals will replace their exchange plan with Medicaid, as would many people who have income below 100 percent of the FPL. Based on Milliman’s projections for Florida, we estimate that about 0.2 million Texans would replace an employer plan with Medicaid if the state expands. Thus, consistent with the Florida projections, only about one-in-three new Medicaid enrollees would otherwise be uninsured. If Texas were to adopt expansion, two-thirds of new Medicaid enrollees would be people who replaced private coverage, principally an exchange plan, with welfare.
Medicaid enrollment would increase from about 13.2 percent of the state population to 23.2 percent if Texas adopts expansion. And the ratio of workers per Medicaid recipient would decline from 3.4 workers per recipient to 2.0 workers per recipient.
For the 1.9 million low-income Texans on the exchange , the federal government is bearing the entire cost of subsidizing their health insurance with no state contribution. If the state were to adopt expansion, the state would bear 10 percent of the cost. The Texans under 138 percent of the FPL will receive roughly $13 billion in federal subsidies this year. Assuming this entire population is converted to Medicaid coverage with a similar overall cost of Medicaid and an exchange plan, the state’s cost of covering these people would be about $1.3 billion under a 90 percent match. Over the first decade of expansion, we estimate that total taxpayer costs of the Medicaid expansion would be $189 billion and state costs would exceed $18.4 billion.
As highlighted above, when Congress is forced by the deteriorating U.S. fiscal position, including higher interest rates and inflation, to pursue long-term deficit reduction, Congress will likely consider proposals that reduce the FMAP for the expansion population. Reducing the expansion FMAP has attracted bipartisan support in the past. As discussed earlier, President Obama included a proposal to reduce the expansion FMAP in his 2012 budget. Many other congressional proposals have gone further. The American Health Care Act, which passed the House of Representatives in May 2017, phased out the expansion FMAP.
If Congress were to adopt a policy phasing out the expansion FMAP, the cost to Texas for expanding Medicaid would be substantial. Using Texas’ standard FMAP, the state share of the expansion population would be roughly $72 billion over the decade. For only the population that lost exchange coverage and gained expansion coverage, a population that currently has coverage at zero additional cost to the state, the state share would be about $47 billion over a decade.
Alternatives to Medicaid Expansion
In the 2020 TPPF paper, I noted that “Recent research from economists Nathaniel Hendren and Ben Sprung-Keyser showed that health programs geared toward lower-income children had a substantially positive rate of return but that the return was negative for health programs broadly targeted at lower-income adults (Hendren and Sprung-Keyser). Additionally, programs that focus aid on providers that care for lower-income populations are almost certainly a better public investment than programs aimed at boosting coverage. For example, federally qualified community health centers have been shown to have a much higher cost-effectiveness with respect to reducing mortality than Medicare (Bailey and Goodman-Bacon). Ultimately, the enormous outlays of economic resources plowed into Medicaid expansion likely could have been used in a variety of ways to better improve the economic well-being and health of Americans.”
For a set of positive health reforms Texas can consider that would expand consumer choice, increase beneficial competition to the state’s health care market, and reform government programs, I would direct you to Paragon’s state health reform book, Don’t Wait for Washington: What States Can Do To Reform Health Care Today. This book contains chapters on how states can reform the state employee health plan to obtain broader reforms in the state health care market, conduct vigorous oversight of Medicaid, expand coverage options like Farm Bureau plans (which Texas did in 2021) and short-term limited-duration health insurance, repeal certificate of need laws, permit health care providers to practice to the top of their training, and expand telehealth coverage. In addition to this list, states should consider requiring site-neutral payments in their Medicaid and state employee health programs to avoid unnecessary overpayments to hospitals and reduce incentives for consolidation in the state health sector.
Texas expanded Farm Bureau plans for health coverage in 2021. Farm Bureau plans are extremely attractive coverage for many individuals and households. The state has determined that this coverage is not considered health insurance for state regulatory purposes, which exempts this coverage from federal insurance regulation, including the ACA. As such, people have access to high-quality coverage that is more affordable and, unlike ACA plans, they can enroll anytime during the year. There is initial underwriting to get an offer of coverage, but the coverage is renewed at standard price increases regardless of the change in an individual’s health status.
Finally, Texas can consider Indiana’s approach to help small employers offer coverage to their workers by making individual coverage health reimbursement arrangements (ICHRAs) more attractive. With an ICHRA, employers can use pre-tax dollars to reimburse the premiums for individual market coverage selected by their employees. In 2023, Indiana enacted a temporary (two-year) tax credit for employers with less than 50 full-time employees that offer ICHRAs. The ICHRA tax credit helps small employers offer coverage, would improve Texas’s individual market, and would reduce Medicaid enrollment.
The full recording of the Testimony can be found here.
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[1] Url:
https://paragoninstitute.org/medicaid/overview-of-health-insurance-coverage-in-texas-testimony-of-brian-c-blase/
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