Medicaid Expansion and the Missouri Economy

A Policy Analysis Paper

by

Jeremy Wrinkle

March 21, 2014

Executive Summary

Missouri is in the midst of a debate on whether or not to expand Medicaid coverage. Progressives see expansion as an opportunity to advance social justice policy goals and improve the Missouri economy. Conservatives believe expansion will harm the state’s finances, while not significantly improving public health. Scholarly research indicates that expansion would be beneficial to the state’s economy. A large amount of the benefits would be felt in the Columbia economy. The state’s labor market would also see a boost from expansion. Other positives are increasing the number of insured families, reducing medical bankruptcies, and ensuring hospital profitability. Negatives include the uncertain effects on the state budget, and the possible failure of Medicaid expansion as a reducer of preventable ER visits. After reviewing the political landscape in the state legislature, it is determined that passage of Medicaid expansion is unlikely for this legislative session. Should Medicaid expansion be passed soon, challenges to successful implementation will be low health literacy among the newly covered, and the shortage of healthcare practitioners.

 

The Progressive Position

On June 28, 2012, the Supreme Court struck down provisions of the Patient Protection and Affordable Care Act (ACA) that required states to expand Medicaid coverage to residents who were below 133% of the federal poverty level (National Federation Of Independent Business 2012). While the decision saved the ACA from being struck down entirely, it created the political problem now facing the state legislature–whether or not the state can or should extend this coverage to its poorest residents.

The consensus among progressive organizations is that Medicaid should be expanded. The MO Progressive Vote Coalition asserts that uninsured rates would plummet across the state, and drop by almost a third in rural southern Missouri. This reduction would be achieved while only increasing the state’s overall Medicaid budget by a limited 2% to 3% (“Medicaid Expansion” 2013). Progressive groups also see expansion as a way to further social justice goals. Medicaid expansion will provide access to health care for marginalized social and economic groups, such as the working poor, veterans, Native Americans, the mentally ill, and those with chronic conditions (Baron 2013). Expansion will also advance public health goals and provide financial stability for working families, furthering economic equity (Baron 2013). With so much to be gained, both in terms of improving the state’s economy and in furthering long-standing policy goals, progressive activists have made Medicaid expansion the top political issue for the current legislative session (Troutman 2014).

 

Expansion: The Arguments For and Against

Hospitals and the Columbia Economy

One group that has been especially vocal in their support of expansion has been hospitals. In order to make the ACA deficit-reducing, provisions were included that reduce payments to hospitals from the Federal government. To make up for these cuts, new revenues were supposed to come from expanded Medicaid and increased private coverage through the exchanges. However, now that Medicaid expansion is optional, an important revenue source for hospitals is threatened. Missouri hospitals stand to lose almost $7 billion in revenues over the next decade without expansion. In 2016 alone, the state’s hospitals will lose a staggering $600 million (Dorn, Buettgens, Holahan, & Carroll 2013).

This loss would hit Columbia especially hard. Health care occupations make up 9.1% of the city’s workforce (Bureau of Labor Statistics, 2012). The location quotient for health care in Columbia is 1.6, which makes healthcare one of the city’s main exporting industries. The mean annual income for health care jobs in Columbia is $62,500. If hospitals in the city were forced to cut back on these positions to remain profitable, the economic losses would be felt deeply and broadly.

Uninsured in Boone County

Boone County has a significantly high concentration of uninsured persons. According to the 2011 community health assessment performed by the Columbia-Boone County Health Department, Boone County has an uninsured rate that is 1.2 times higher than the rest of the state (Columbia/Boone County Department of Public Health and Human Services 2011). Policy interventions that lower these rates in Missouri will have an even greater effect in our area. A study released by the Kaiser Family Foundation estimates that the uninsured rate in Missouri would drop by a further 32% if Medicaid were expanded (The Urban Institute 2012). Medicaid expansion, in addition to other changes such as adding persons under 26 to their parents’ health insurance, could help to alleviate the Boone County insurance coverage disparity.

Reducing Bankruptcies

Bankruptcy exacts a severe emotional toll on low-income families. Working adults who have to file for bankruptcy experience depression, anxiety, and even thoughts of suicide. Despite discharging their debts, long-term financial stability and retirement can become compromised (Thorne & Anderson 2012). Medical costs are estimated to contribute to 26% of all bankruptcies (Gross & Notowidigdo 2011). Expansion of social insurance reduces the need for many bankruptcies. According to Gross & Notowidigdo (2011), for every 10% increase in Medicaid eligibility, there is a corresponding 8% reduction in bankruptcies. Assuming these figures can be plausibly applied to the Medicaid expansion estimates by the Kaiser Family Foundation, Medicaid expansion in Missouri could see a 25.68% reduction in total bankruptcies. Besides the obvious benefits of increasing financial security for working families, sparing them the emotional toll of medical bankruptcy would provide an additional, non-financial benefit.

Missouri’s Labor Market

Medicaid expansion would have a profoundly positive effect on Missouri’s labor market. A study done by University’s School of Medicine estimates that over 20,000 new jobs would be created in Missouri through 2020. Central Missouri would see 2422 of those jobs, and a 13% reduction in unemployment. Between 2014 and 2020, Central Missouri would see an additional $682 billion in earned labor income (University of Missouri School of Medicine 2012). The study did not break these figures down on a county basis, so it is difficult to determine precisely how much of these gains would accrue to Boone County/Columbia. However, the authors do say that the greater share of these labor gains would go toward more urbanized areas (University of Missouri School of Medicine 2012). With the city’s export-level concentration of healthcare practitioners, we can reasonably infer that a great share of Central Missouri new jobs and wages would be in the Columbia area.

Potential Cost Increases

One argument against Medicaid expansion is the potential for greater costs to the state than the planned 90/10 split. Sen. Kurt Schaefer (R) of Columbia argues that the uncertain, long-term effect on the state budget makes Medicaid expansion fiscally irresponsible (Schaefer 2014). His concerns are not entirely motivated by partisanship and ideology. After the ACA was passed, the Obama Administration began floating a potential change to the cost sharing formula (Roy 2012). The rates of reimbursement for each state would be changed from a single rate for Medicaid and CHIP, to a “blended” single rate for both programs. This change would partially shift the cost of expansion from the Federal government to the states. The Heritage Foundation, a conservative think tank, estimates that under this formula, the cost of expansion in Missouri would rise from $514 million between 2014 and 2022, to over $1 billion over the same period (Gonshorowski 2012). It is difficult to imagine this costlier formula being passed over the political objections of the states, but that the Administration has proposed this idea should give proponents some pause.

Emergency Room Utilization

One benefit of Medicaid expansion cited by supporters is decreasing ER utilization by the uninsured (Kelly 2014). However, this benefit may not materialize. A study of pre-ACA Medicaid expansion in Oregon found that the newly insured were more likely to use the ER, not less (Taubman et al 2014). ER visits for the newly covered were 41% higher than for a control group. Further, this increase was entirely due to preventable non-emergency medical care–un­preventable emergency care was unaffected by insurance coverage. The authors do state though that the time period of the study was very narrow, and took place very soon after coverage was extended (Taubman et al 2014). A long-term study may find the changes in ER utilization predicted by expansion proponents.

Crowd Out

Another argument against increased public insurance enrollment is the crowd out effect. The theory is that if the government expands its role in the insurance market, private insurers will lose customers to public insurance. Existing workers who receive insurance from their employer may drop their coverage and move to cheaper Medicaid coverage. This crowd out effect was factored into the study of hospital revenue gains from Medicaid expansion by Dorn, Buettgens, Holahan, & Carroll (2013). They found that while there would be some crowd out, the extra revenues hospitals would receive from newly-covered patients (reducing uncompensated care) would more than offset this. However, there is evidence that the crowd out effect may be overestimated. Hamersma and Kim (2013) found no evidence of this effect in Medicaid–there was no statistically significant movement of persons from private insurance to Medicaid when income eligibility was increased. Instead, they found that as income eligibility increased, the increase in the number of new Medicaid recipients became smaller. This implies that Medicaid is an inferior good–people will “consume” less Medicaid as they earn more money. This bodes well for the proponents of expansion. The projected increases in hospital revenues cited earlier may actually be underestimated.

 

The State of the Legislature

Sen. Kurt Schaefer (R) -Columbia

One of the most public opponents of expansion is Sen. Schaefer. In the past month he has published two editorials, outlining his opposition to expansion. His objections are primarily budget-related. He states that the state does not have the budget capacity to support the cost of expanded Medicaid once the state’s 10% comes due. If expansion happens, he believes drastic cuts would have to be made to public education. He also asserts that changes must be made to Medicaid before a discussion of expansion takes place, citing fraud control and moral hazard (Schaefer 2014). He has not introduced any bills in this session addressing Medicaid expansion or reform. He has however introduced SB 589. This bill creates bureaucratic barriers for insurance navigators, whose role is to help people enroll in ACA insurance plans. SB 589 was passed by the Senate, and has been given a second reading by the General Assembly (S.589 2014).

Other Republicans

Sen. Rob Schaaf of Saint Joseph is representative of a faction of Republicans completely opposed to Medicaid expansion. He has gone as far as to proclaim he would “stand and filibuster expansion of Medicaid until I can’t stand any longer [..]” (Matson 2014). He has introduced a bill that would instead institute more conservative-oriented policies, such as health savings account for Medicaid recipients, and medical pricing transparency (S. 847 2014).

Other Republicans are not so intransigent. Rep. Noel Torpey of Independence has proposed tying the expansion of Medicaid to a work requirement. Persons who are a covered under the expansion would have to maintain a job, or be ineligible for coverage. This change would require a waiver from the federal Center for Medicare and Medicaid Services. The only other state to attempt this, Pennsylvania ended up pursuing an alternative work-eligibility scheme (French 2014). Rep. Torprey’s bill is H.B. 1901 (2014).

In 2013, Rep. Jay Barnes of Jefferson City proposed his own changes in Medicaid eligibility. His plan would add enough working adults to trigger the influx of Federal money promised by the ACA, but limit eligibility and benefits for children, pregnant women, cancer patients, and the blind (Barnes 2013). His plan assumes that those persons would be able to find coverage through alternative federally-subsidized ACA plans (“Barnes outlines Medicaid ideas” 2013). The Missouri Medicaid Coalition criticized the plan, saying it would reduce the amount of money the state would receive from the Federal government, while covering fewer people than a straight-forward expansion (Missouri Medicaid Coalition 2013). His bill, H.B. 700 (2013), did not receive a vote, and died in the previous session.

Rep. Chris Kelly

Rep. Kelly of Columbia is an outspoken proponent of Medicaid expansion. Reasons he cites are increasing jobs and labor income in Missouri, providing more revenues to Columbia hospitals, preserving rural hospitals, improving mental health care, and reducing reliance on emergency room services (Kelly 2014). He has sponsored H.B. 1239 (2014), a bill that would increase Medicaid eligibility to 138% of the Federal poverty line. This bill has not been placed on the General Assembly’s calendar.

Other Democrats

Sen. Paul LeVota of Jackson County sits on the Senate Interim Committee on Medicaid Transformation and Reform (“Members named” 2013). He has been a leading voice for expansion in the Senate. His statements of support largely follow the reasoning used by other proponents–increasing coverage for needy families while increasing economic growth for the state (Young 2014). After the first defeat of the year for Medicaid expansion in the Senate, he introduced his own bill to tackle the budget objections of Republicans. His bill, SB 661 (2014), contains a fail-safe mechanism that would terminate coverage for the newly insured if the ACA were repealed, or if funds from the Federal government are insufficient to provide benefits.

Other Democrats have introduced Medicaid expansion bills as well. Rep. Michael Butler of Saint Louis’s bill, H.B. 1168, would extend Medicaid eligibility to children under one and pregnant women who are below 185% of the Federal poverty level; children up to 19 years of age, their caretakers, and the medically frail up 133%; and persons 19 to 65 who are not pregnant or medically frail up to 100%. Rep. Brandon Ellington and Rep. Jeremy LaFaver of Kansas City have sponsored near identical bills in this session.

 

Likelihood of Expansion

According to House Speaker Tim Jones, Medicaid expansion has very little chance of passing in this session (Helmy 2014). The scholarly research backs up that claim. Rigby (2012) identifies three important factors in determining state resistance to the ACA: public opposition, GOP control of the legislature, and the professionalism of the legislature. Public opposition to the ACA has been strident in Missouri, with two ballot measures in 2010 and 2012 limiting the law passing by wide margins (O’Neill 2012). The GOP currently enjoys strong majorities in both the general assembly and the senate, though they only possess two statewide offices. The state legislature’s professionalism score is in the middle of the state-by-state rankings, and declining over time (Squire 2007). These factors do not bode well for passage of Medicaid expansion. However, Medicaid expansion on its own appears to poll well (Crisp 2012), and supporters of expansion control most the executive branch. Passage of expansion will require supporters to create strategies that use these political advantages to overcome the challenging, conservative political climate.

 

Other Issues

Health Education

The availability of coverage may not automatically lead to a reduction in the uninsured, or to improvement in health outcomes. Health literacy, or the ability to competently make decisions about one’s health care, is a significant factor in both. Sentell (2012), in a survey of California residents, found that low health literacy was significantly correlated to a lack of insurance. This correlation existed while holding other variables constant, such as employment and English proficiency. Of those that were insured, a significantly higher portion of health illiterate persons were on public insurance. Low health literacy has implications for a variety of health outcomes. Berkman et al (2011), in a large meta-study, found links between low health literacy and lower levels of preventative medicine usage, increased mental health problems, and inconsistent taking of medication. Perhaps most relevant to the debate on Medicaid expansion, the researchers also found a link between low health literacy and high usage of ER facilities. If expansion is undertaken in Missouri, addressing this policy problem will be necessary for successful implementation.

Physician Access

Ku et al (2011) point to another challenge with expanded Medicaid–physician access. In states with high levels of uninsured persons, there is a corresponding low supply of physician labor. This mismatch of low supply and increased demand from the newly insured may cause increased wait times for general practitioners (GP) (Ku et all 2011). This would not just be a problem for Medicaid recipients, but for the entire population of Missouri. In a ranking of GP capacity, Missouri places in the lower half. The authors note that they only studied states’ GP capacity. The shortage of specialists may become even more critical. Since there will be an increase in health care demand, there should eventually be an increase in the supply of GPs. However, this adjustment would take some time. Increased expansion of Medicaid may need to be paired with other legislation that increases the number of GPs and specialists in the state, so that the health care shortage would not be as long-lasting, and the quality of care in the state not suffer (Ku et al 2011).

 

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