Affordable Care Act

Higher Medicaid Expansion Costs Reveal Another Obamacare Design Flaw

The damage for taxpayers in this one simple underestimation error alone is roughly $20 billion.



Remember when the Obama administration promised that the Affordable Care Act's expansion of Medicaid would be awesome? The idea behind this part of the law was that the expansion of the pool of people eligible for Medicaid would help reduce the number of uninsured and that these new enrollees would be relatively cheap when compared with those already in the program. Well, that's not what happened.

A colleague of mine at the Mercatus Center, Brian Blase, recently reported a shocking statistic: The Department of Health and Human Services just "found that the ACA's Medicaid expansion enrollees cost an average of $6,366 in (fiscal) 2015—49 percent higher than the $4,281 amount that the agency projected in last year's report." That's quite a mistake.

If you're thinking this type of mistake is nothing new—because government officials always tend to underestimate the cost and overestimate the benefits of the programs they're pushing—you're right. In this case, the error comes from having assumed that the state officials who oversee the Medicaid program are good stewards of our money. It turns out they aren't, however, because they simply respond to the terrible incentives built into the law.

Under the ACA, states that expand Medicaid have to expand eligibility beyond the previous subset of low-income Americans—e.g., pregnant women—to cover all adults with incomes of up to 138 percent of the federal poverty level. The expectation was that the cost for these new enrollees would be much lower than the cost for the people already in the system, precisely because the original enrollees were poorer and likelier to be chronically sick. In truth, the states didn't care much about the cost because the law gave the states an incentive to expand by offering to pay for 100 percent of that expansion for a few years. That share would drop thereafter but would still be at least 90 percent.

In fact, the states that have expanded were so insulated from the cost, thanks to the enhanced funding, that they "set outrageously high capitation rates—the amount government pays insurers—for the ACA Medicaid expansion population," Blase explains. "The rates are much higher than the amounts for previously eligible Medicaid adult enrollees," he adds, "and suggest that states are inappropriately funneling federal taxpayer money to insurers, hospitals and other health care interests through the ACA Medicaid expansion."

The damage for taxpayers in this one simple underestimation error alone is roughly $20 billion. However, that's just the tip of the iceberg—an error made for just the cost of the Medicaid expansion. Back in March, the Congressional Budget Office increased its projection of overall federal spending for Medicaid significantly, by $146 billion over the 2016-25 period. This time, the error was the dramatic increase in the cost per existing enrollee.

Congress could do something about this new ACA scandal. The only acceptable solution would be to radically reform a program that—according to new research by academics Amy Finkelstein, Nathaniel Hendren, and Erzo Luttmer—only returns 20 to 40 cents of value for each dollar spent on new enrollees and fails to demonstrate that it provides real health benefits to those enrolled.

Ending the ACA's Medicaid policy would be a big improvement. Blase also favors changing the financing structure to incentivize value instead of higher and higher spending. He concludes, "We should then allow states a great deal of additional latitude to set eligibility, premiums, copayments, benefit structure, and more."


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  1. Yet another “unforeseeable” consequence that was predicted by many back in the day.

    1. Indeed. It’s most like Iron was involved. Or something.

      Nite, Counselor.

    2. It’s like everything that everyone here said would happen, has happened, or is happening. But we need MOAR.TOP.MEN!

      1. We are a bunch of crazy kooks. Nobody listens to us.

        1. The Town Flake stood up to speak. He is an old and addled gentleman
          with hair in long, white tangles ? WASP dreadlocks. He’s been making a
          complete and utter pest of himself at town meetings for over thirty years.
          He owns his own mimeograph machine and runs off reams of smudgy
          philippics accusing town government of incompetence and waste. He knows
          all the regulations in Robert’s Rules of Order and uses them until he has
          to be shushed by the moderator or shouted down by the townspeople. And
          he is always and invariably right on every issue
          — PJ O’Rourke, Parliament of Whores

          1. accusing town government of incompetence and waste

            Well, he’s probably right about that, at least.

  2. A colleague of mine at the Mercatus Center, Brian Blase…

    …who was very indifferent about the whole thing…

  3. I’m shocked! Shocked I tell you!

  4. I hope the newspapers cover this, otherwise how will Obama find out?

  5. How many Reason contributors voted for the asshole who gave us this, and will vote for the asshole who make sure it is permanent?

    1. Don’t worry. Hillary will change it enough that it becomes her legacy. Of course, she’ll make it even worse. But legacy, that’s all that matters. Hillarycare, killing millions through bad healthcare is just so cool, because it was a woman who made it possible. And that damn negro will get her coffee.

      1. No, Clinton will change it so that all of the bad things come after she leaves office because surely her successor will be a non-Democrat.

        That way they can blame any failures in Obama-Hillarycare on a non-Democrat.

        It’s the same way that the bad things in Obamacare are showing up near the end of his term ? leaving things for his successor to either fix for legacy (if a Democrat) or to collapse (if a non-Democrat).

    2. and will vote for the asshole who make sure it is permanent?

      I don’t think there’s much need to worry about that, the Reason writers don’t strike me as Trump voters.

      1. And everyone knows Hillary plans to repeal it.

        1. Hillary will just rename it Hillarycare by executive order and then get back to banning guns, raising taxes, general cronyism and mobster activities, and fucking up the middle east.

          1. So, the third Obama term, then?

            1. On steroids.

            2. I think she’s more willing to use executive order than Obama was. Yes, I know what I just said.

          2. Hillary will just rename it Hillarycare by executive order

            No need to read or pass it to find out what’s in it then? Whew!

      2. the Reason writers don’t strike me as Trump voters

        You don’t say.

  6. Pedantic pet peeve:

    the expansion of the pool of people eligible for Medicaid would help reduce the number of uninsured

    People on Medicaid are uninsured. They are on welfare. Saying someone is “insured” because they are on Medicaid is like saying that someone cashing social security checks has a job.

    Yeah, this is pedantic, etc. But the game is won or lost on these kinds of issues – framing, control of the narrative, etc. Words have consequences because they shape our thinking. Gun “buybacks”, “civilians” who aren’t cops, etc.

    1. All of that RC. And then there is the underlying insanity that offering to pay for the medical care of people who currently have no insurance is somehow going to lower over all health care costs.

      Think about that for a minute. It is exactly like saying that the government offering to buy cars for people who couldn’t afford them will lower overall spending on the purchase of cars. These fucking morons actually thought the government offering to pay for something would cause people to want less of it.

      It is just mindboggling how stupid the people wrote this actually were.

      1. Oh they weren’t stupid, they know exactly what they are doing. Break the system, single payer here we come.

        The more I see news like this the more evidence you have that none of this was unintended.

        1. No. You totally over estimate them. They may have wanted single payer but they looked at this as their great contribution to history. They thought this was going to work and give Democrats a perminant majority for the next three generations. If they thought it was going to lead to single payer it was because they thoutht it would work so well and make Democrats so popular that the public would eventually agree to single payer as the final triumph of what they created.

          They did not have some grand plan to destroy the private sector and create a national disaster necessitating single payer. That is just a fantasy. They really were this fucking stupid. Don’t ever kid yourself. They may be craven and power hungry, but they are more than anything and first and foremost profoundly fucking stupid and incompetent.

          1. As GM explains below, this was the plan all along. They knew the business model couldn’t contain costs once they added millions of new freebies, this was all foreseen.

            Hell Gruber even admitted it multiple times.

      2. It is just mindboggling how stupid the people wrote this actually were.

        I figured I couldn’t go to bed just yet.

        No, John, it’s not. Remember that asshole, Jonathan Gruber? He said the goal was to make coverage so unaffordable, in conjunction with MEDICAID EXPANSION (this was done precisely to break the State’s Medicaid budgets and force them to accept short term expansion relief – integral for the eventual acceptance of FedGov in charge totally) would necessitate eventual Single Payer. ON CAMERA!!!!

        This, John, is why the wording what constituted a State Exchange was so vitally important, if you remember that battle over legal definitions WRT to whom would be paying those precious, precious subsidies.

        This is all according to plan, John. HillaryCare, like she want in 1990’s, will happen, if elected.

        1. They would love to try that. The problem is there is no money. They missed their shot. Even if they got a 60 vote Senate majority this fall, they couldn’t get Hillary care because the money isn’t there.

          1. they couldn’t get Hillary care because the money isn’t there.

            This has stopped them before how, exactly? The primary part of the HillaryCare is overseeing delivery of care, and most importantly, the one bulwark preventing a total takeover, is the individual State control their own medical boards. That is what HillaryCare wants, more than anything else, is to get those boards.

            They have to break the States’ monopoly before they can institute theirs. With deductables through the roof, and CMS expanding more and more, there is incentive to turn it over to FedGov and be done with it. Convincing employers to do so, where a major labor expense can now be collectivised, at this point won’t be that hard.

            She has already floated out the magical words, “Public Option.” Which even a Majority Team Red Congress WILL rubber stamp.

            1. The money won’t stop them, that’s true. They’ve been spending in excess of the budget now for years. They don’t care about that. They care about power and keeping it for as long as they can. They cannot stop themselves even if they wanted to. they’re sick people who are hellbent on destruction.

          2. John, the “no money” thing, even though its true, is obviously no impediment to getting laws passed.

          3. Since when is the money not being there a limit to government expansion?

          4. The problem is there is no money.

            As long as people have 401K’s and IRA’s there is plenty of money.

      3. Their ultimate demise is that they won’t know when to stop. In fact, they have probably already crossed the line of when vote buying through entitlements starts to cause serious economic problems. And yet, they act like they have not even got started yet. Free college, free fucking everything, and the middle class is getting to the point that it can no longer bear the cost. The middle class will just disappear, the poor pay nothing, and the rich will not pay more, they’ll just leave if there’s an attempt to force them. Any attempt to force them to stay here will backfire in dramatic fashion. We are truly fucked, it’s just a matter of time.The statists will not stop, because they cannot, it’s a mental problem that people who crave power are naturally afflicted with. This is why all nation states eventually fail Venezuela here we come.

        1. The middle class at best is breakeven. They do not pay for this. The top 20% does. They middle class are the welfare state.

    2. My plan for how to change the law is ‘reform’.

      My opponent’s plan for how to change the law is just some crazy scheme.

      Why does he oppose common-sense reform?

  7. It’s working, you rat fucking baggers! Everyone loves higher costs and more scarcity! We’ll never get to paradise because of this libertarianism!

    1. Also obligatory:

      Pajama Boy

      Maybe they really are putting estrogen in the drinking water.

  8. It’s a lost cause.

    I a world where people love themselves some big government: why shouldn’t it be buying medicine?

    Why not have a free pill factory?

    Just imagine if medicine was as easy and cheap as public drinking water. Wouldn’t that be nice?

    Thus, the outcome is clear.

    1. Just imagine if medicine was as easy and cheap as public drinking water. Wouldn’t that be nice?

      This is very possible through emerging technology. But the government will never allow it. The goal of government is not betting the lives of people, the goal is power. They will regulate into oblivion any attempt of technology to make healthcare more obtainable for everyone.

      1. Molecular 3d printers that can crank out meds will be technically possible before too much longer.

        They will, of course, be outlawed before they see the market.

        1. Molecular 3d printers that can crank out meds will be technically possible before too much longer.

          Getting pedantic, printing at the molecular level is de facto not 3D. But, yes and even already, drug discovery testing and distribution would be easy and cheap if not for the mountain of protectionist regulation that has already been erected. The law is already set up such that the substance is illegal until cleared by the FDA.

          1. Pedantry acknowledge, and respected.

            This would be more in the line of nano-manufacturing, I suppose.

          2. Unless you’ve figured out a way to make atoms 2D, it is 3D printing. And the popular mechanics we’ll-have-jetpacks-real-soon-now is bad enough when Bailey does it. Don’t fall into the same trap.

  9. OT…. This will be my last time visiting here. I’ve been lurking here for years and Reason has devolved into another arm of the MSM. With few exceptions, (commentators like RC Dean for example) the commentariat has turned into HuffPo levels of stupidity. Most of the good commentators have disappeared or rarely post anymore and the smart ones have devolved into “DEY TOOK R JERBS” as discourse. Maybe I’ll check back in a few years but I can get real Libertarian viewpoints from other sources.

    1. Huzzah! Tulpa is finally leaving!

    2. Sad to hear that you feel that way. This is still the best commentariat on the web by far. A few weeks at WaPo or pretty much anywhere else will make you reconsider your opinion, though.

      I also disagree with you that the best commenters have left. Some good people have left, but there are still plenty here. People have not always been serious around here a majority of the time. A lot of the comments are just about having fun. Otherwise, you start to get frustrated by just how fucked up everything is.

      Instead of leaving, you should join in the conversation.

    3. Taking a break, I totally get.

      Check in, though. With a turbo-charged scroll wheel, its not hard to skim and pick up the commentators that are worth your mindspace. There’s still quite a few around, IMO.


      Well, repetitive articles yield repetitive comments.

      I have noticed that Reason is much more politically oriented than I remember it being (and not just because of an election year). Libertarian articles tracking politics devolves into libertarians talking about what republicans and democrats are doing, all the time. Not that libertarian politicians are more interesting, but, yeah. If I want to know what libertarians think of the latest dem/rep pols, I can look in my own head.

    5. I’m going to give you Invisible Finger’s curse:

      May you live under increased government.

      1. I do understand what you’re saying though. I now skip most of the Kultur War signaling articles and any post where the topic is the GOP or Democrats. Which leaves about 3 or 4 H&R posts a day at most.

    6. See Ya|8.4.16 @ 4:31PM|#
      “OT…. This will be my last time visiting here. I’ve been lurking here for years and Reason has devolved into another arm of the MSM.”

      Why, isn’t just great that some anonymous twit appoints him or her-self as the arbiter of who is wonderful and who isn’t! And says they’re taking their ball and going home!
      As one whom I’m sure you don’t like, let me offer the wish that you fuck off, get lost and stay lost.
      Please do let the door hit you in the ass.

  10. “Well, that’s not what happened.”

    The true legacy of Obo, right there.

  11. Can we unleash some state DAs to punish the politicians and advisers who lied about this law? Or does that tactic only work in one direction.

  12. i get Paid Over ?80 per hour working from home with 2 kids at house. I never thought I would be able to do it but my best friend earns over ?9185 a month doing this and she convinced me to try. The potential with this is endless.

    Heres what I’ve been doing,………

  13. It is exactly like saying that the government offering to buy cars for people who couldn’t afford them will lower overall spending on the purchase of cars.

    “Yeah, but we’re only buying them Kias, no way it could cost more, those are cheap!”

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