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Opinion | Alabama should wait and watch before considering Medicaid expansion

J. Pepper Bryars

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If only Alabama’s leaders had a magical Medicaid “Choose Your Own Adventure” book, so they could flip ahead and see the different outcomes we could expect by expanding the government insurance program that was originally designed for the poor and disabled.

Would it end in a stronger economy, more jobs and a vibrant system of rural hospitals?

“Medicaid expansion remains an economic development opportunity without equal,” said David Becker, an economics professor at UAB, in an Al.com article.

Or would it bankrupt our already cash-strapped state budget and further sink our country into unsustainable levels of national debt?

“When you expand Medicaid, the administrative costs and the cost of expansion will eventually swamp the state,” warned U.S. Rep. Gary Palmer, R-Hoover, during an interview on the Matt & Aunie Show on Talk 99.5 FM in Birmingham. “It has in other states. Illinois is about to go bankrupt.”

Each side makes a strong case, but the truth seems hidden behind a fog of experts, statistics and forecasts that confuse more than clarify.

The Economic Impact

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A UAB study conducted by Becker and paid for by the Alabama Hospital Association found that even when Alabama starts paying 10 percent of the expansion’s costs, the move would create thousands of new jobs and generate $2.7 billion a year in economic activity. Becker wrote that the expense would be “almost entirely offset” by new tax revenue and state spending reductions on current Medicaid enrollees and other health programs.

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And another study funded by the same association concluded that “state savings and other economic gains from expansion could be reinvested in the health care system in Alabama, including to support expansion and other state priorities.”

But critics say those predictions are extremely unrealistic and point to how widely off the mark such estimates have been elsewhere.

States that expanded Medicaid have signed up more than twice as many “able-bodied adults” than expected and per-person costs have exceeded original estimates by a whopping 76 percent, according to a 2018 report by the Foundation for Government Accountability. This led to cost overruns of 157 percent, the report showed, with Medicaid now accounting for one of every three state budget dollars.

Many expect the same overruns in Alabama, which would exacerbate our already challenging budget.

“We will have to find $250 million more in the state general fund every year, even when revenues decline in recessions,” said Daniel Sutter, an economics professor and director of the Manuel H. Johnson Center for Political Economy at Troy University, in an email. “Alabama’s perennial budget crisis is due largely to having to pay for Medicaid every year. Medicaid expansion makes this pressure worse.”

Hospital Closures

Supporters of Medicaid expansion most often mention that 12 Alabama hospitals have closed this decade, with many being in rural areas possibly leaving residents without critical care nearby. Expanding the program, they contend, may have saved those hospitals, and could still save many that are at risk.

“Those are critical dollars for us as our hospitals currently spend more than $500 million each year in care for which they receive no reimbursement,” said Owen Bailey, chairman of the board of the Alabama Hospital Association and CEO of USA Health, in a press release. “Providing insurance through Medicaid expansion is vital to maintain access to care for everyone.”

While an influx of Medicaid cash would help these hospitals in the short term, it’s unclear if it solves the underlying problems that created their instability in the first place.

Hospitals are losing money and closing for a variety of reasons, according to The New York Times — shrinking rural populations, hospital mergers, consolidated services, regulatory burdens, low reimbursement rates, and a decrease in hospital care due to outpatient services and speedier care that requires less hospital time.

Officials at one Kansas hospital that closed in 2015 told The Times that additional Medicaid funds would have been significant but probably would not have helped them survive in the long run.

Meanwhile, help could come from elsewhere. The federal agency that oversees Medicare recently announced that its “tweaking” the formula used to reimburse hospitals in Alabama, a move that AL.com noted could increase payments to rural hospitals.

A way forward

When economists are arguing vastly different forecasts and outcomes, it’s often helpful to fall back to a few simple yet immutable conservative principles. Chief among them is the principle of prudence, which basically says we shouldn’t rush big decisions – decisions that have long-term consequences and that cannot easily be reversed, if at all.

Medicaid expansion is clearly one of those decisions.

And even without that magical Medicaid “Choose Your Own Adventure” book, there have already been unexpected plot twists, and clear deathtraps, for other states who decided to expand the program.

Alabama should wait and watch to see if the promises, or the fears, are realized.

We should also patiently observe states taking alternate story-lines through Medicaid waiverspartial Medicaid expansion requests, and block grant plans.

Otherwise, if Alabama takes the bait and expands Medicaid, we might turn the final page only to see that ominous yet sadly predictable word.

Bankrupt.

J. Pepper Bryars is a senior fellow at the Alabama Policy Institute. Follow him on Twitter at @jpepperbryars.

 

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