Killing the Medicaid Expansion Controversy

There are benefits to expanding Medicaid -- like reduced death rates, according to a new study -- but what are the real costs?
by | August 28, 2012

To expand or not to expand (Medicaid) -- that is the question states have been facing since the Supreme Court’s June decision on the federal health-care reform law. Unsurprisingly, states' decisions have been falling along party lines, with most blue states choosing to expand coverage to more low-income people and most red states opting out of the Medicaid expansion. The reasons are usually based on ideology and cost, but almost never the potential health of the recipients.

That changed -- momentarily anyway -- when a study conducted by Harvard researchers and published in the July 25 issue of The New England Journal of Medicine found that three states that expanded Medicaid in 2001 and 2002 -- New York, Arizona and Maine -- collectively saw a 6.1 percent decline in the death rate for people ages 20 to 64 compared to neighboring states. Even larger reductions were reported among minorities and people in low-income areas.

Columnists and bloggers immediately began making hay over the report, but one comment in particular, at the very end of a long New York Times article about the report, seemed particularly pithy to me. Janet M. Currie, director of the Center for Health and Wellbeing at Princeton University, said the new study helps reframe the Medicaid debate. “This says, well there is benefit to giving people insurance,” she told the Times. “Maybe you don’t want to pay the cost, but you can’t say there’s no benefit.”

I contacted Currie, a professor of economics and public affairs, to learn more about this corner of the Medicaid expansion debate. The first thing to note is that the NEJM study is nothing new. “There are lots of past studies showing that Medicaid expansions have improved health for target groups (e.g. infants, children, teens), some showing reductions in mortality also,” she wrote me in an e-mail. In fact, another study came out last July reporting that Medicaid patients in Oregon -- which expanded its Medicaid program in 2008 -- see doctors more often, take their medications more often, report better health and better financial stability, and even feel happier and less stressed.

“So there should not be controversy about whether there are benefits,” Currie wrote. “It does cost money to provide medical services to people, so the question is how one balances the costs and benefits.”

OK, I’ll bite: How does one do that? As an economist, Currie does it through an analysis called “value of a statistical life” or VSL. One paper she sent me calculated that Medicaid costs between $1.1 million and $1.6 million per life saved. That sounds like a big number, but “actually it means it’s cheap to save lives this way,” she said in a follow-up phone call.

There are all kinds of government regulations based on VSL, she said, mentioning flammability standards for children’s clothing as just one example. “Many regulations are based on an order of $10 million to $20 million per life saved,” said Currie. “The standard number is $5 million, so anything less is a good deal compared to other things we do to preserve lives.”

If research shows that Medicaid can save lives and do so cost-effectively, why wouldn’t states expand coverage? “Ultimately these are all political decisions,” she said. “No matter how good the cost-benefit analysis is, if someone thinks government has no place in the lives of people, it doesn’t matter.”

Then Currie asked me a question (“Why did this study appear [in the NEJM] when it did?”) that she answered herself: “One reason is that it will cost providers boatloads of money if [the states] do not accept the federal dollars being offered to cover expanded Medicaid.” As part of the Affordable Care Act (ACA), the feds will pay almost all the bills (93 percent) for states to expand Medicaid coverage until 2017 – at which point the states will start chipping in. That means that if states covered all newly eligible members, the feds would pay about $931 billion through 2022, while states would collectively pay $73 billion, according to an analysis of a Center on Budget and Policy Priorities report.

“Now, if a big state like Texas decides not to take the money the feds are offering, their providers are up the creek,” she said. “They will get a lot less revenue but will still have to treat the uninsured. If you want to take the cynical view, the NEJM puts these studies out because doctors really want states to do something about the uninsured.”

Pressure like this, she said, is in part why some Republican governors who are against the ACA have said they will at least look at the issue.

Still, some states will opt out anyway. Currie predicts that, “they won’t save lives and they will put a lot of stress on providers and hospitals, especially in areas with poor people. They will have a lot of problems caring for those people. Not having insurance doesn’t make these people go away.”

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