Leveraging the Medicaid Expansion

Abstract

In response to provisions in the Patient Protection and Affordable Care Act (PPACA), 40 states and the District of Columbia expanded their Medicaid programs – resulting in roughly 20 million American gaining state-run (but mostly federally funded) health insurance. Despite these coverage gains, 27 million Americans (8.3%) still do not have health insurance. To address this problem, the obvious targets of opportunity are the 10 states (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming) that have refused to expand their Medicaid programs. The hold-out states have specific fiscal challenges, constraints, and governance cultures that any reform proposal must address. We propose that rather than adhering to Medicaid’s traditional structure, where states pay providers at unreasonably low rates for treating beneficiaries, expansion projects should be modeled on Social Security and the Earned Income Tax Credit, both of which distribute money that recipients can spend as they wish. This simple but fundamental design change would ameliorate or eliminate many of the major problems that existing third-party payment arrangements foster. It would also enhance beneficiaries’ access to care by enabling them to pay market rates. Reform offers the potential to promote effective state-level governance, while simultaneously improving healthcare, budgeting, and the cost-effectiveness of state and federal spending. From a distributional perspective, the beneficial consequences will be disproportionately captured by the sizeable Latino and African American populations in these ten states.

Keywords: medicaid, leverage, coverage expansion

JEL Classification: I11, K32