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John Kasich’s Medicaid Expansion and Uncompensated Care

Commentary

This commentary originally appeared in The Federalist on October 25, 2013.

News broke this week that Ohio will become the 25th state to expand its Medicaid program under Obamacare despite efforts of the state legislature to prevent it. Governor John Kasich, who has made a habit of invoking Christianity to justify an expansion of the taxpayer-funded entitlement program (“We have to help them… The Lord expects us to do that”), bypassed the legislature with an appeal to an obscure administrative entity called the State Controlling Board, which recently approved $2.56 billion in federal funds to cover the newly eligible Medicaid population in Ohio.

Back in February, before God told him to expand Medicaid, Kasich tried to convince state lawmakers that expansion was a good deal fiscally because it would reduce uncompensated care—the costs incurred by hospitals and taxpayers when uninsured people seek treatment in the emergency room. “We don’t want 275,000 Ohioans getting their primary care in an emergency room,” he said. “It is not sustainable, it doesn’t work, it is not humane and it costs everybody a lot of money.”

This has been one of the more persistent—and false—lines of argument that proponents of Obamacare have resorted to in the ongoing debate over Medicaid expansion. Hospitals spend billions on uncompensated care each year, and the federal government reimburses them for some of these costs through the Medicare and Medicaid Disproportionate Share Hospital (DSH) programs, which pay out about $22 billion to hospitals annually. Per the Affordable Care Act, between 2014 and 2020 those payments will be reduced by $18.1 billion based on the naïve assumption that once Obamacare is fully implemented there will be no need to pay for uncompensated care because most people will be insured or on Medicaid.

The trouble for Kasich and the Obama adminstration is that in most states, uncompensated care costs are not driven primarily by the uninsured but by Medicaid patients, who tend to have a drastically higher rate of emergency room use than every other group, including the uninsured. Researchers at UC San Francisco reported in a study last month that Medicaid patients’ emergency room usage was higher than the uninsured and the privately insured, that Medicaid ER usage grew at a faster rate during the study timeframe, and that Medicaid patients had the highest rate of ER use for preventable conditions.

The promise that Medicaid expansion will reduce uncompensated care isn’t new. Like everything else about the ACA, it’s been tried before—and failed. The uncompensated care line was one of the selling points of Arizona’s Medicaid expansion in 2002, when the state decided to extend coverage to everyone earning less than 100 percent of the federal poverty limit (the Obamacare expansion covers everyone up to 138 percent ). Instead, Arizona saw a 9 percent average annual increase in uncompensated care during the first eight years of its Medicaid expansion.

Something similar happened in Maine, where state officials expanded Medicaid eligibility in 2002. Contrary to the promise that expansion would reduce uncompensated care, a report by the Foundation for Government Accountability found that these costs grew from $40 million in 2000 to $196 million in 2011.

Reducing uncompensated care costs might be a legitimate policy goal, but expanding Medicaid will not work for Ohio—or any other state reckless enough to hazard a misguided reform that has been tried, and failed, before.

Mr. Davidson is a writer based in Austin, Texas, and a health care policy analyst at the Texas Public Policy Foundation.