FREEPORT – There have been a flurry of editorials, op-ed columns and letters in recent weeks in support of Medicaid expansion in Maine under favorable terms offered by the Affordable Care Act.

The arguments are mostly variations on a theme. The expansion would provide access to care for a sizable number of newly eligible low-income individuals, mostly childless adults, and having access to care would result in better health and a more productive work force, and would lower the cost of uncompensated care.

The clinching argument is that the federal government will pay 100 percent of the claims costs for newly eligible individuals through 2016, declining gradually to 90 percent in 2020 and beyond.

Expansion appears even more compelling for Maine because of a report by the Urban Institute that concludes that the state would save $570 million through 2022 compared with its costs if MaineCare is not expanded. To expansion advocates, this looks like the proverbial free lunch with money back.

However, the report is fundamentally flawed because it assumes that a much larger number of currently covered childless adults would transition to an expanded program at higher federal matching rates then would actually be the case.

Maine received a waiver to include childless adults in its MaineCare program in 2002, but enrollment and costs were so much greater than expected that the program has periodically been capped and currently covers 10,500 individuals with incomes up to 100 percent of the federal poverty level.

The state’s share of coverage costs for this group would decline from 37 percent this year to 10 percent in 2020 if it agrees to expansion. However, the state expects that enrollment would immediately jump to 50,000 individuals in an expanded program, with income eligibility increasing from 100 percent to 138 percent of the poverty level.

Although there would be some savings over the next three years from a higher federal matching rate on the childless adults Maine already covers, the savings would start to decline in 2017 and by 2022 would be almost completely offset by the state’s cost of covering a significantly larger number of new enrollees. Beyond 2022, the expansion would result in a growing net cost to Maine.

The state’s MaineCare program is already struggling, in part because of generous benefits and eligibility, and partly because increases in enrollment and costs have been much more rapid than growth in the state’s population in the past 10 years. Program costs have regularly exceeded estimates, and MaineCare owes hospitals $484 million for past Medicaid services.

Democratic legislators want to make payment of the hospital bills contingent upon Medicaid expansion, even though these are separate issues and should be dealt with separately.

It may be tempting to provide Medicaid to a larger number of individuals, some of whom already have individual or group coverage, as long as the federal government is paying, but advocates have no plan to pay for the higher long-term costs of an expanded program.

What looks like a good short-term deal for the states isn’t so great for the federal budget. The Congressional Budget Office expects Medicaid to be the second-fastest-growing part of the budget over the next 10 years, just behind interest expense on the huge national debt. By 2023 annual Medicaid outlays are expected to be $572 billion, nearly as large as all nondefense discretionary spending.

Medicaid needs to be reformed before it is expanded. Most Americans understand the health and economic benefits of a safety net program for the needy. But the suggestion that the open-ended current program is horrendously costly, does not produce the best health outcomes and is full of perverse incentives for patients and providers usually triggers an explosion of protest from welfare advocates, who don’t believe that cost and efficiency should influence program design and scope.

Making Medicaid a block grant program to the states would make its cost more controllable and predictable, and would allow states to tailor programs to meet their particular needs and resources. Expanding the existing program simply hides costs by shifting them from states to Washington, and will exacerbate the rising trajectory of health care spending.

In the meantime, expansion advocates ought to at least acknowledge that free health care actually isn’t free, and they should stop pretending that funding for a Medicaid expansion is created by some magical process in Washington from which local taxpayers are exempt.

Martin Jones of Freeport is a financial analyst (and a former senior managing director in the investment division of US Bank).


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