Will hospitals kill Medicaid expansion?

Published August 11, 2022

By John Hood

For more than a decade now, advocates of the Affordable Care Act have pressed the North Carolina General Assembly to implement the federal law’s most expansive and expensive element: expanding Medicaid to virtually all low-income adults. Every year, advocates have left the legislature disappointed.

They left disappointed at the end of the 2022 legislative session, too. I wish it was because most lawmakers resolutely rejected Medicaid expansion. I’m no fan of the policy, which would add hundreds of thousands of North Carolinians to the public dole and widen the federal government’s already massive budget deficit.

But lawmakers who once expressed similar concerns, including House Speaker Tim Moore and Senate leader Phil Berger, have switched their positions. Medicaid expansion now enjoys bipartisan support in both chambers, however much I might wish otherwise. (Of course, if I thought wishes could alter reality, I wouldn’t be a conservative.)

So why didn’t expansion happen this summer? Gov. Roy Cooper hit the nail on the head last week when he blamed the intransigence of North Carolina’s hospital executives, whom he urged to “step up and compromise with the state legislature.”

Their lobbying arm, the North Carolina Healthcare Association, quickly responded with letters to Cooper, Moore, and Berger as well as full-page ads in many of the state’s largest newspapers that shifted the blame back on lawmakers. Hospital execs “are not elected to office, and therefore we are not the ones standing in the way of passing legislation,” wrote the president of the association, Steve Lawler. “That burden, and opportunity, lies with your branches of government.”

The dispute isn’t really about Medicaid expansion anymore. It’s about an archaic regulatory system called certificate of need (CON). North Carolina requires hospitals, physician practices, and other providers to get a permission slip from the state to add a new location, expand an existing one, or make other major investments in equipment or services.

When CON was concocted decades ago, its proponents believed such a regulatory apparatus would keep prices down by discouraging the overutilization of services. Then reality intruded. By limiting competition, CON created monopolies and cartels that tended to drive prices up and quality down, just as they do in most other sectors of the economy.

I’ve written many times about the adverse effects of this wrongheaded policy. During the pandemic, for example, jurisdictions with strict CON laws had a harder time meeting the demand for hospital beds and medical care. Some states, including North Carolina, enacted temporary respites from the regulations — a decision that, according to a study published earlier this year in the Journal of Risk and Financial Management, led to a “reduction in mortality resulting from COVID-19, septicemia, diabetes, chronic lower respiratory disease, influenza or pneumonia, and Alzheimer’s Disease.”

In the version of Medicaid expansion passed by the North Carolina Senate, this temporary relaxation would be replaced with permanent decontrol. The House version left out CON reform, though it appears that lawmakers in both chambers would be inclined to work something out in the absence of heavy pressure from hospitals loath to give up their CON-protected fiefdoms.

This is what Cooper is talking about. As a Democratic governor facing a Republican-controlled legislature, he has been unable to get much of his policy agenda enacted into law. His administration has been largely one of executive orders and vetoes, not signing ceremonies.

Still, Medicaid expansion has been a top goal for six years — and now Berger and Moore have walked very far in his direction. With a deal so tantalizing close, Cooper’s frustration is both unmistakable and understandable. “When pretty much everybody agrees that we ought to expand Medicaid in our state,” he said, “it’s important to go ahead and get it done.”

I don’t agree, but I’m just a lowly scribbler. Steve Lawler and his members could make expansion happen this year if they budge on CON. Or perhaps lawmakers will defy this powerful interest group. I admit it — I’m not sure which side to root for.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history.