NC's $10 billion Medicaid challenge: Pay for other states or take federal money

by Ann Doss Helms and Tony Pugh, News and Observer, September 2, 2014.

North Carolina taxpayers could spend more than $10 billion by 2022 to provide medical care for low-income residents of other states while getting nothing in return, a McClatchy Newspapers analysis shows.

The federal health law tried to expand Medicaid to millions of low-income, uninsured adults. But many Republican-led states, including North Carolina, opted out of the plan championed by President Barack Obama.

If the 23 states still rejecting Medicaid expansion stick with that decision, they’ll contribute $152 billion over 10 years to states that take the federal money, the analysis shows. North Carolina would be one of the top five contributors.

Pennsylvania, which originally said no, got approval last week to use federal money for its own variation on Medicaid expansion, one that extends subsidies for private insurance to cover up to 600,000 of the state’s poorest adults. Arkansas and Iowa are using a similar approach.

Don Taylor, an associate professor of public policy at Duke University, has been quietly pushing his own version of that plan for North Carolina. He says refusing the federal money results in “the redistribution of money from poorer states to richer ones, an outcome imposed by the poorer states upon themselves.”

McClatchy analyzed data from the Urban Institute, a nonpartisan think tank that has advised states on the Affordable Care Act.

Taxpayer contributions, estimated at $10.2 billion from North Carolina and $3.1 billion from South Carolina, won’t change regardless of participation. But as things stand, only the 27 states (along with Washington, D.C.) that expanded Medicaid or created their own programs are sharing in the benefits.

Katherine Restrepo, health care analyst for the conservative Raleigh-based John Locke Foundation, says it’s a mistake to characterize that as sending money to other states. By saying no to expansion, she says, North Carolina reduces the total spent on Medicaid – and tacked on to the federal deficit.

“It’s taxing future generations to provide benefits for our current generation,” Restrepo said.

Challenge in Raleigh

Medicaid looms at the top of the agenda when the North Carolina legislature convenes in January. What’s unclear is whether Republican leaders will reconsider their refusal to accept the federal money.

This year, Senate leaders clashed with Gov. Pat McCrory and House leaders over plans to control medical costs and improve the state Medicaid system. None of them called for expanding Medicaid.

“We are interested in finding cost-effective solutions to ensure more North Carolinians are receiving high-quality health care,” Senate President Pro Tem Phil Berger said Friday, when asked about 2015 prospects. “Unfortunately, the federal government has demonstrated very little willingness to help states pursue innovative reform strategies that make good use of free market competition and private insurance.”

Berger says escalating Medicaid costs pull money from education, public safety and other state needs.

While proponents emphasize that the federal government pays 100 percent of expansion costs at the outset, the state starts sharing those costs in 2017. Through 2022, the Urban Institute estimates North Carolina would pay $3.1 billion for its share. That’s on top of the taxes residents will pay regardless of whether they get any benefit.

Berger has argued those costs could be much greater if the deeply indebted federal government defaults on its promises.

McCrory and House Speaker Thom Tillis did not respond to requests for comment.

Falling into the gap

When the health law, titled the Affordable Care Act, was approved in 2010, it outlined a nationwide program for expanding Medicaid to cover low-income adults. Insurance exchanges, with federal subsidies for premiums and some out-of-pocket expenses, were designed to pick up where Medicaid left off. Those subsidies start at 138 percent of the federal poverty level – about $32,900 for a family of four.

A lawsuit challenging the act’s constitutionality led to a 2012 U.S. Supreme Court ruling that allowed states to opt out of Medicaid expansion.

The result: Millions of people earn too little to get subsidies and don’t qualify for Medicaid. Some estimates run as high as 689,000 in North Carolina alone, many working in such low-wage jobs as home health aides, waitresses, bus drivers and construction workers.

Meanwhile, hospitals and doctors are taking cuts in Medicare and Medicaid payments. The act is supposed to offset those cuts by reducing charity care and bringing in revenue as more people get covered.

Bad for business?

The North Carolina and Charlotte chambers of commerce haven’t taken a stand on the state’s handling of Medicaid. But the Charlotte Chamber’s recent health care symposium brought in national speakers who said rejecting the federal money hurts the state’s economy.

“Your industries are suffering because you’re not getting the increased business,” said Ceci Connolly, managing director for PricewaterhouseCoopers’ Health Research Institute.

National experts agree that Medicaid expansion ripples through state economies, creating jobs and boosting tax revenue. “This additional use of medical services not only brings more federal dollars, but hospitals, physicians and pharmacies would likely hire more people, keep longer hours and probably raise wages,” said Michael Morrissey, a health economics professor at the University of Alabama at Birmingham.

Moving forward

Taylor, the Duke professor, says pressure is building for Republicans to find a face-saving way to take the money.

Other once-resistant states, such as Indiana and Utah, are working with the Obama administration to create their own versions of expansion.

Many experts believe that kind of flexibility eventually will expand low-income coverage in most Republican states.

In North Carolina, “there will be an opportunity for a political deal,” Taylor says. “State flexibility in the ACA is a feature, not a bug.”

The Locke Foundation, which tends to land close to GOP leaders’ views, wants the federal government to award Medicaid money to states as a block grant, with North Carolina using it to support “a universal, refundable tax credit” to cover premiums, along with government contributions to individual health savings accounts.

The goal, Restrepo writes, should be to help people “climb the economic ladder and step out of the state’s safety net.”

Restrepo says she hopes progress that proved elusive during this summer’s session materializes next year. “There should be more of a focus on solutions and bipartisan work,” she said.

This article is done in collaboration with Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

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