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U.S. COVID-19 Response Must Expand and Federalize Medicaid in All 50 States

March 28, 2020

Six years before he was outed as the Coronavirus equivalent of a war profiteer, Republican Senator Richard Burr (R-NC) summed up the GOP’s health care plan. “The American system has access to healthcare for everybody,” Burr said, “It's called the emergency room.” Of course, that go-to Republican ER talking point has been a deadly lie since President George W. Bush first regurgitated it in 2007. With many hospitals already overwhelmed with new cases, America’s mushrooming COVID-19 crisis should be the final nail in its coffin.

But the situation is even more dire than that. After all, 27.5 million Americans—some 1.9 million more than in the previous year—had no health insurance at all even before Coronavirus struck. As a tsunami of layoffs sweeps across the nation following last week’s stunning 3.3 million new jobless claims, millions more will lose coverage. Worse still, state budgets will be devastated as the rising demand for services will occur at precisely the same time that tax revenues will be drying up. As a result, the ranks of the uninsured, shuttered rural hospitals and the needlessly dead will grow rapidly, especially in those red states which refused to expand Medicaid under the Affordable Care Act.

All of which is why President Trump and Congress must act to immediately expand Medicaid in all 50 states. As it did when Obamacare was first launched, for the next three years the federal government should fully fund the extension of Medicaid eligibility to 138 percent of the federal poverty level (FPL) in every state. Before the COVID outbreak, that move alone would have provided coverage for 4.8 million Americans. Soon, that figure could easily be twice as high. But that’s not all. Uncle Sam should step in now to take over the $225 billion the states spend annually on their share of the $600 billion Medicaid program.

To help understand why, it’s worth a quick review of how Medicaid worked before and after the passage of the Affordable Care Act (a.k.a. Obamacare). As I documented back in August 2013 on the eve of Obamacare enrollment:

Currently, the $350 billion Medicaid program serves roughly 63 million Americans. On average, the federal government picks up 57% of the tab, with poorer states like Mississippi and Alabama getting 75% of the funding from Washington. Medicaid not only pays for a third of nursing home care in the United States; it covers a third of all childbirths. (In Texas, the figure is one-half.) As with Medicare, Medicaid provides insurance for substantially less than private insurers (27% less for children, 20% for adults), while new studies from Oregon and Massachusetts show it dramatically improves the health of its recipients. (So much for the claims of Republicans like Tennessee Senator Lamar Alexander, who charged that Medicaid is "a medical ghetto" that "none of us, or any of our families, would ever want to be a part of for our health care.")

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Even more so then, the shared Medicaid program varied widely from state to state. As noted above, the income-based formula for federal funding meant that Uncle Sam paid a much heftier share of expenses in less affluent red states than in the generally more well-to-do blue states. Even more important, eligibility and benefit levels tended to be much lower in GOP-controlled states. As Glenn Kessler of the Washington Post explained in 2011:

Mississippi provides some of the lowest Medicaid benefits to working adults in the nation. A parent who isn't working can qualify only if annual family income is less than 24 percent of the poverty line. Working parents qualify only if they make no more than 44 percent of the federal poverty level. Seniors and people with disabilities are eligible with income at 80 percent of the poverty line. Pregnant women do better -- they're eligible with income up to 185 percent of the poverty level.

Translated from the federal poverty guidelines, that means a working Mississippi couple with one child could earn no more than $8,150 a year and still qualify for Medicaid, seniors and people with disabilities could earn no more than $8,700, and a pregnant woman could earn no more than $20,000 a year.

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Eliminating this yawning gap in insurance coverage for lower income, usually working Americans was one of the prime objectives of the Patient Protection and Affordable Care Act signed into law by President Obama 10 years ago this week. Medicaid would be expanded to cover individuals and families making up to 138 percent of the federal poverty level. Between 138% and 400% of FPL, the Obamacare exchanges would provide subsidies for Americans to purchase insurance from private carriers through the exchanges. To sweeten the deal, Uncle Sam would cover 100 percent of the Medicaid expansion for the first three years, with the federal contribution declining to 90 percent after 2020.

Unfortunately, in the June 2012 NFIB v. Sebelius case, the Supreme Court ruled the federal government could not coerce states into accepting the Medicaid expansion by withholding other funding if they refused. Nevertheless, for the states it was still a deal too good to pass up.

Unless, of course, they were governed by Republicans. Initially, some 21 states refused Barack Obama’s sweet deal. And as we’ll see below, they did so solely because it was Obama himself making the generous offer. As predicted, the results have been doubly catastrophic for the Medicaid Opt-Out states, of which there are still 14.

For starters, millions of Americans in those generally very red states fell into the “coverage gap.” As the Kaiser Family Foundation (KFF) explained in January:

Medicaid eligibility for adults in states that did not expand their programs is quite limited: the median income limit for parents in these states is just 40% of poverty, or an annual income of $8,532 for a family of three in 2019, and in nearly all states not expanding, childless adults remain ineligible. Further, because the ACA envisioned low-income people receiving coverage through Medicaid, it does not provide financial assistance to people below poverty for other coverage options. As a result, in states that do not expand Medicaid, many adults, including all childless adults, fall into a “coverage gap” of having incomes above Medicaid eligibility limits but below the poverty level, which is the lower limit for Marketplace premium tax credits.

Using 2018 data, KFF calculated that 4.8 million people needless lack insurance in those opt-out states. Some 2.3 million must go without because their incomes are greater than the states’ current Medicaid eligibility cut-off and the 100 percent poverty level. In addition, another 2.1 million who are eligible for exchange subsidies but still cannot afford to purchase coverage would become eligible under Medicaid expansion.

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As the two charts above show, the “coverage gap” is primary a problem plaguing states located in the south and governed by Republicans. Texas alone has 1.55 million residents in the coverage gap, or one-third of the entire national total. Given research showing one life saved in Massachusetts for every 830 residents gaining Medicaid coverage, these GOP Opt-Out states have a body count in the thousands.

It’s not only unnecessary; it’s downright stupid.

Stupid, that is, because study after study predicted and has since shown that state Medicaid expansion more than pays for itself. Even after picking up the tab for 10 percent of the annual cost a year, budgets in expansion states end up in the black. In Medicaid expanding states, tens or even hundreds of thousands of residents gain insurance coverage. As a result, hospitals throughout the state find their cost of providing care for the uninsured—which they are legally obligated to provide—plummets. (States which did not expand Medicaid are on the hook for those dollars.) Better still, Medicaid expansion leads to new investment and jobs in the health care sector, fueling higher tax revenues which then go back to state coffers. As Ezra Klein and Evan Soltas summed up a 2013 analysis by the RAND Corporation of 14 Medicaid rejecting states:

It finds that the result will be they get $8.4 billion less in federal funding, have to spend an extra $1 billion in uncompensated care, and end up with about 3.6 million fewer insured residents.

So then, the math works out like this: States rejecting the expansion will spend much more, get much, much less, and leave millions of their residents uninsured. That's a lot of self-inflicted pain to make a political point.

As I wrote that fall in “Republicans Put Red State Hospitals at Risk”:

Savannah Memorial has plenty of company in Georgia. Republican Governor Nathan Deal said no to $33 billion in new federal Medicaid funding over the next decade. But as the federal government significantly reduces funding on Disproportionate Share Hospital (DSH) payments for the care of the uninsured, states like Georgia which turned down Obamacare's Medicaid dollars will be on the hook to make up the difference. For Grady Memorial Hospital, the largest in the metro Atlanta area, what could have been an annual boon of $60 million and coverage for 27,000 uninsured patients instead will be a $45 million loss. Georgia taxpayers will have to pay more even as hospitals likely cut services. Meanwhile, three cash-strapped rural hospitals have already closed their doors. Another 15 may follow suit in 2014. All because a Republican Governor said "no" to free money from Washington, DC.

That dire impact for rural hospitals across the country has played out largely as predicted. Since 2010, 126 rural hospitals have closed, the vast majority in the Medicaid Opt-Out states in America’s south. As Vox reported in February, “2019 was the worst year for rural hospital closures this decade, with 19 hospitals in rural America shutting their doors.” The future, the Chartis Center for Rural Health warned, may be even more bleak:

The highest levels of rural hospitals identified as ‘most vulnerable’ exist in states such as Texas, Oklahoma, Tennessee, Mississippi and Georgia. Each of these states have seen four or more rural hospital closures since 2010. Texas leads the nation in closures with 20 during this period, while Tennessee (12), Oklahoma (7) and Georgia (7) each rank in the top 5 among states experiencing the most closures.

Similarly, states with the highest number of ‘at risk’ facilities are Texas (36), Kansas (19), Missouri (15), Nebraska (14) and Mississippi (13). While Nebraska has seen only one rural hospital close since 2010, Missouri has lost six and Kansas and Mississippi have each lost five.

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Now with the Coronavirus outbreak spreading across the country, states’ refusal to expand Medicaid will move from merely stupid to criminally irresponsible. The three million Americans who lost their jobs—and with them, insurance coverage--over the past week will be joined by many millions more. As Kaiser Health News pointed out on March 20, half of the counties in the United States have no hospital intensive care unit (ICU) beds. As the Associated Press reported on March 25:

Across the nation, there are over 51,000 general intensive care beds in urban counties, compared with just 5,600 in rural counties […] Those beds serve a smaller population than in urban areas, but it would still take fewer people in rural areas to overwhelm a typical hospital. In fiscal year 2018, the average rural hospital had eight ICU beds, compared with 20 for a typical hospital in an urban area.

The time to end the greatest act of political spite is finally upon us. Congress must pass and President Trump must sign legislation expanding Medicaid to all 50 states. As when Obamacare was initially launch in the fall of 2013, the federal government must pay 100 percent of the cost for all states for the next three years. States which run their own health care exchanges must reopen enrollment immediately. The federal government should do the same for the all of the other states that use Healthcare.gov for their residents. In addition, Obamacare’s list of “essential health care benefits” must be expanded to include Coronavirus testing and treatment.

But those measures, as vital as they are, won’t be sufficient to protect the health and financial security of millions of Americans from the impact of Coronavirus. That’s because the economic devastation inflicted by the necessary COVID19 shutdowns will choke off state tax revenues at precisely the same time that the demand for services will skyrocket. And with the sole exception of Vermont, all of the states are required by law to balance their budgets every year. That means 2020 and 2021 will see draconian state budget cuts and, inevitably, massive layoffs of public employees including teachers, police and firemen.

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We know from painful experience of the Great Recession which began in December 2007 what will ensue. State and local governments will emerge as the “anti-stimulus,” enacting steep spending cuts that will wipe out, or at least partially counteract, the gains from federal relief packages. Even with President Obama’s $800 billion American Recovery and Reinvestment Act of 2009, government spending at all levels continued to decline until 2014. The destructive austerity policies of state and local governments created an "anti-stimulus," with layoffs of public sector workers and cuts to spending that only served to undermine the gains from ARRA (see the second chart above). By May 2013, the Hamilton Institute estimated those austerity policies cost 2.2 American million jobs and resulted in the slowest recovery since World War II. In April 2012, the Economic Policy Institute explained:

The current recovery is the only one that has seen public-sector losses over its first 31 months...If public-sector employment had grown since June 2009 by the average amount it grew in the three previous recoveries (2.8 percent) instead of shrinking by 2.5 percent, there would be 1.2 million more public-sector jobs in the U.S. economy today. In addition, these extra public-sector jobs would have helped preserve about 500,000 private-sector jobs.

To prevent a repeat of that brutal policy failure, the federal government should take over the entire cost of Medicaid and the Children’s Health Insurance Program (CHIP) for at least the next three years, if not permanently. To be sure, as the Kaiser Family Foundation documented last fall, that would be an expensive proposition:

Medicaid (together with CHIP) provided coverage to about one in five Americans, or about 72 million people, as of July 2019.1 Total Medicaid spending was $593 billion in FY 2018 with 62.5% paid by the federal government and 37.5% financed by states.2 Medicaid accounts for one in six dollars spent in the health care system and more than half of spending on long-term services and supports.

But Washington’s absorption of that roughly $225 billion would enable the states to provide insurance to millions more of their residents while avoiding the massive layoffs and spending reductions they otherwise would have to make. In fiscal year 2019, at almost 29 percent Medicaid represented the single biggest slice of state expenditures. (Led by Missouri at 39%, 15 states dedicated more than 30 percent of their total spending to Medicaid.)  Thanks to the current federal contribution, that constitutes 16.4% of state funds.

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Now, the total federalization of Medicaid would mean a 180-degree for the Trump administration’s health care policy. For starters, Trump is seeking to convert Medicaid into block grants for the states. By slowing the growth of federal Medicaid outlays and letting states control eligibility, benefits and beneficiaries would inevitably be cut. (Being able to “de-federalize an entitlement,” former House Speaker Paul Ryan told Rich Lowry of the National Review, is something "we've been dreaming of this since I've been around -- since you and I were drinking at a keg.”) More importantly, the Trump DOJ will be arguing before the Supreme Court in December that the entire Affordable Care Act should be struck down as unconstitutional now that the tax penalty for the individual mandate has been removed. If Trump succeeds in Texas v. U.S., some 20 million Americans will lose their health insurance and an estimated 54 million more would find their coverage jeopardized due to preexisting conditions. (Had it not been for Arizona Senator John McCain’s thumbs-down vote in 2017, most of Trump’s future damage would already have been done.)

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As the Coronavirus cases and body count continue to mount across the United States, Congress must act fast to protect the health and financial security of tens of millions of vulnerable Americans. Reinstating a tax penalty—even one dollar—could moot the Texas case in SCOTUS. Extending—even for one year--Obamacare’s subsidies to those earning up to, say, 600 percent of the federal poverty line would limit the costly impact on American families. The ACA’s Medicaid expansion should be extended to all 50 states and the federal government—finally—should pick up the entire bill for the whole program. After all, for the love of God, we’re talking about fighting Coronavirus, the first pandemic to hit the United States in 100 years. As then-Ohio Governor John Kasich put when he urged his fellow Republicans to expand Medicaid in the Buckeye State:

"When you die and get to the meeting with St. Peter, he's probably not going to ask you much about what you did about keeping government small, but he's going to ask you what you did for the poor. You'd better have a good answer."

A good answer, indeed. Because in the age of Coronavirus, you can’t “just go to the emergency room.”


About

Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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