Medicaid Expansion: A Raw Deal

Jul 10, 2019 | Blog | 0 comments

For the sake of most Oklahomans, our state legislature should continue to hold out against the unrelenting pressure of monied interests and refuse to expand the state’s Medicaid program under Obamacare. Why? It’s simple, really, if someone is robbing my house, moving from room to room and taking my valuables, I’m not going to point out a room they missed and invite them to steal even more. Expanding Medicaid will just allow the health industry to take even more from us than they already do.

That’s the fundamental, underlying message of my most recent paper, Medicaid Expansion in Colorado: An Exercise in Futility. In addition to providing some context about just how rich the health industry is in this country, I use plain language to restate the conclusions of an official study from a Colorado state agency to point out that Medicaid expansion advocates (mostly from the health care industry) are selling us a false bill of goods.

The false claim is that if we expand Medicaid, currently uninsured patients who do not pay their bills will have their bills paid by Medicaid. This will allow hospitals to lower prices for the rest of us since prices are high at least partly to make up for the freeloaders.

The Colorado study shows that when Medicaid was expanded, hospitals raised their prices even faster than they had in the past, exactly opposite the claims of the health industry’s Medicaid expansion advocates. And this hasn’t just happened in Colorado. A study out of Arizona shows exactly the same phenomenon. I suspect we’d find the same in nearly every one of the 36 Medicaid-expanding states. And, we’d see the same thing right here.

Surely, you might think, there has to be something wrong with these studies. After all, it makes sense that prices have to be raised to make up for losses suffered when some don’t pay their bills. There’s even a name for it, “cost shifting”, where the costs of treating the uninsured are shifted to the insured. Surely that’s a real phenomenon and Medicaid expansion could reverse it.

But these studies expose the reality that cost shifting, like other explanations of why health care is so expensive, is used by the health care industry to confuse us. They say new technology raises costs, but in every other industry since the dawn of man, improved technology lowers costs and prices. They say costs are high because they have to treat everybody in emergency rooms, but the Reagan-era law they reference only says someone has to be treated and stabilized if they have life-threatening injuries. They claim that emergency room treatment is very expensive, but never explain why, even when emergency rooms experience high volumes, where high volumes reduce per-unit costs in other industries.

Still, you might be thinking, none of this explains why health care prices would rise even as health care gets more money from Medicaid. That’s true. So far I’ve only given examples of how we are easily distracted.

The fact is that when the health industry gets more government money, it raises prices because that’s how the industry claims all the money it was making before PLUS the new Medicaid money. That’s how it is that health care claims nearly a fifth of Americans’ incomes. That’s how it is that 13 of the 15 highest-paid professions are in health care. That’s how it is that less than 10 percent of employed Americans (those in health care) claim twice that level of America’s total income.

The most difficult argument to overcome in favor of expanding Medicaid, though, is that for a mere $100 million, Oklahoma will get $1 billion of its own money back from the federal government. This money, it is said, will benefit all Oklahomans as it is spent here, and improve our economy. This is tough to refute, but it’s not impossible.

First, our unemployment rate is below 4 percent, essentially at full employment. More money in health care will only distort the economy more than it is now, and it’s not as if people are dying from lack of health care. The industry has the money to take care of anyone who really needs help, as shown in an earlier 1889 Institute study of hospital finances.

Second, the health industry is so wealthy that it’s debatable just how much new money spent on it would stay in the state. Odds are, it would just go to buy vacation homes in Jackson Hole or in The Hamptons.
Third, “a billion for a mere tenth of that” sounds a lot like “you must buy this since it’s on sale.” The result is rarely a happy one. And this is especially true when it’s been demonstrated that the sale is a raw deal.

And that’s the upshot of the Colorado and Arizona studies. Medicaid expansion is a raw deal. It only allows the richest sector in our economy to take even more from us, not out of necessity, and not for any benefit to the rest of us, but simply because it can.

by Byron Schlomach, 1889 Institute Director