Medicaid Expansion Falters in Virginia

Advocates of bigger government face a tough climb.

For some, whether to expand Medicaid in Virginia boils down to a choice between two propositions: (a) Government should do more to help the unfortunate, or (b) no, it shouldn't.

If only it were that simple. Of course it isn't — any more than whether to invade Iraq boiled down to a choice between (a) keeping nuclear weapons out of a dictator's hands or (b) letting him have all he wanted.

Advocates of the Iraq war pitched it like that, of course, and some greatly oversold it. They predicted a quick, low-cost victory in which American forces would be greeted as liberators and smothered in gratitude. It didn't quite work out that way. The war ended up lasting far longer, and costing far more, than anybody anticipated. Oops.

But then, so many new government ventures do. Forecasters in 1967 predicted Medicare would cost a mere $12 billion by 1990. Actual 1990 spending on Medicare: $110 billion. (The trajectory continues: Last year Medicare consumed $536 billion.) Medicaid also has far outstripped cost projections, in certain areas by an order of magnitude.

What sort of costs and benefits might we expect from Medicaid expansion in Virginia? Two reports offer some clues.

The first comes from the liberal Commonwealth Institute, which supports expansion. The second comes from the conservative State Budget Solutions, which doesn't.

The Commonwealth Institute says "Medicaid Expansion Would Pay for Itself" because Virginia could use federal dollars to underwrite activity it now uses state dollars to pay for, such as indigent care. What's more, Virginia would pile up more tax revenue owing to the thousands of jobs Medicare expansion would create.

This seems overly optimistic. Take indigent care. Massachusetts was supposed to slash such spending when Romneycare expanded insurance coverage there — but it didn't happen. A report by the National Association of Public Hospitals and Health Systems noted that hospitals lobbied for hundreds of millions in continued state payments — and got them.

That might not happen here. Yet even if it doesn't, ask yourself what state lawmakers would do when shifting indigent care to Medicaid frees up $70 million a year. Would they cut taxes by an equivalent sum — or spend the money elsewhere? The answer is obvious. But if the money simply gets spent elsewhere, then saying the state has "saved" that money seems inaccurate.

The Commonwealth Institute also argues that because expanded Medicaid would shoulder more of the cost for community mental health services, "it would reduce state spending for these services" and "save the state $292 million over the next nine years." Sounds good. But in the next breath the report says many mental health agencies "have waiting lists," so "Medicaid expansion could free up capacity and funding" for them. In other words, those savings might get plowed right back into the local agencies. This might be a wonderful thing for Virginia's neglected system of mental health treatment. But should it qualify as a savings?

Like other advocates, the Commonwealth Institute cheers the "tens of thousands of well-paying health care sector jobs" that Medicaid expansion would create. Should it? Allocating the jobs elsewhere might be more economically beneficial. Consider this from a recent post on the website of the Harvard Business Review:

"Over half of the $2.6 trillion spent on health care in the United States in 2010 was wages for health care workers, and labor productivity has historically worsened at a rate of 0.6 percent per year. … Demand and supply are not growing in tandem: From 2002 to 2012, inpatient days per capita decreased by 12 percent while the workforce in hospitals grew by 11 percent. … Unfortunately, health care as an industry continues hiring far faster than demand is growing."

Shouldn't health care reform make productivity better, not worse?

The report from State Budget Solutions offers another reason for concern: Medicaid expansion might "shift people away from private insurance and into public insurance." It draws attention to Arizona, which expanded Medicaid over a decade ago and also "expected to reduce state spending by lowering the costs for uncompensated care." But "the estimates were all wrong. … Rather than saving millions per year, costs jumped. … Private insurance enrollment dipped. … Eight years after expansion, Arizona had spent four times as much as expected."

To which you could fairly reply, so what? Medicaid expansion still might be worth any price if its new beneficiaries will be better off. But will they?

The State Budget Solutions report argues that "expanded Medicaid does not guarantee … effective health care." It cites a New England Journal of Medicine study of Medicaid expansion in Oregon, which found that while new enrollees had less stress, they had no "measureable improvements in physical health outcomes." It also cites a 2010 study by U.Va. that found the "in-hospital mortality rate for Medicaid recipients who went under the knife was 13 percent higher" than for the uninsured. The study found "Medicaid payer status was associated with the longest length of stay and highest total costs" — and that's after "controlling for age, gender, income, geographic region," and so on.

To the most inflexible advocates of expansion, none of this will matter: There's a dictator out there trying to build weapons of mass destruction (figuratively speaking). He has to be stopped, so it's time to go all in. But don't worry, victory will be cheap and swift.

For everyone else, though, the question should look a little more nuanced.

This article originally appeared in the Richmond Times-Dispatch.