Projections re Cost of Medicaid Expansion: Too Good to Be True

There are a lot of Latin phrases you learn when you’re in law school. Some of them have even made their way into common, everyday English! One of those is the warning caveat emptor, “Let the buyer beware.” Expressed in more modern terms, caveat emptor serves the same purpose as the reminder that, if a proposition being pitched to you sounds too good to be true, it probably is.

There’s a lot of “pitching” going on right now that you should beware of, precisely because it is of the too-good-to-be-true variety.

From the 12 senators in the Unicameral who co-sponsored LB577, the bill to voluntarily expand Medicaid in Nebraska; to the special interest groups that stand to make a lot of money off of it and, therefore, support it; to the capital city’s newspaper that endorses it and every other liberal boondoggle that comes out of the Unicameral these days. They’re all sending the same message, dwelling on the same selling point: Expanding the Nebraska Medicaid program is the fiscally responsible thing to do — It will save the state money.

Now, I’m not going to quibble and point out that saving the state money and saving the state’s taxpayers money are two different things.  I think I made that point in my last article. We, and, unfortunately, our children and our children’s children, are on the hook to pay regardless of what the Unicameral does with regard to LB577. LB577 just determines which pot of current and future taxpayers’ money the funds may come from: federal tax proceeds or state tax proceeds.

Too good to be true, like diamonds on the soles of my shoes . . .

Here are three reasons why you shouldn’t believe what LB577′s supporters are saying about the ultimate price tag attached to expanding Medicaid in Nebraska and about the extent to which federal tax money will be available to fund it.

1.  Cost projections are notoriously unreliable, consistently understating actual cost by a significant margin.History is filled with examples of federal programs – especially in health care – that cost far more than originally predicted.” Medicaid is no exception.

Wilbur Mills and other early champions of the program denied that Medicaid was intended to be another large entitlement; they saw it merely as a safety net for the poorest and most helpless Americans.” But actual experience that first year proved them wrong from the start.  When it was enacted in 1965, the House Ways and Means Committee estimated that the cost of the Medicaid program would be $238 million for its first year. It wound up costing $1.3 billion.

The failure to accurately predict the size, scope, and consequent cost of Medicaid has been the one thing that has remained constant about Medicaid since it began.

Projected to increase only modestly, annual Medicaid spending (combined state and federal) in fact exploded — to $29 billion in 1970, $68 billion in 1980, $121 billion in 1990, and $250 billion in 2000 (all in 2010 dollars). [In 2010, Medicaid spending continued to rise, reaching $427 billion.] Obviously, the growth in the cost of health care more generally has outpaced that of most other goods and services during the same period. But in most years since 1965, Medicaid spending has grown faster than either private health spending or Medicare spending.”

I haven’t spent the time necessary to determine what our state legislators anticipated spending when they first opted into Medicaid, but:

“over the past two decades Nebraska’s per capita state spending has nearly doubled, from around $2,650 to roughly $5,100 (using inflation-adjusted 2009 dollars). Just over a quarter of Nebraska’s spending growth is attributable to Medicaid. Nebraska’s Medicaid spending increased 224 percent over the past two decades, controlling for inflation and population growth. State spending on Medicaid grew nearly twice as fast as state education spending and over 20 times faster than state spending on transportation.”

As recently as 2007, state Medicaid authorities projected that, by 2025 (archived link), Medicaid and state aid to education, the two biggest ticket items in Nebraska’s budget, would ALONE take up ninety-five percent (95%) of state revenues.

And remember what I wrote in the second article in this series, Let’s See What Condition Our Condition is In. The lion’s share of the growth in Medicaid spending is attributable to the actions of state legislatures expanding the program to cover optional services and/or optional populations, not to unfunded federal mandates as our elected officials would have you believe. In Nebraska, almost seventy percent (70%) of annual Medicaid expenditures are necessary to pay for optional services or optional enrollees that the senators in our Unicameral have voluntarily chosen to cover.

. . . Like money falling out of the blue, don’t be fooled!

 2. Projections concerning the numbers of people that will qualify and enroll in Medicaid typically understate the actual participation rate, and the Affordable Care Act (ACA a/k/a Obamacare) will only increase the margin of error involved.  Experts disagree as to the numbers of people who will enroll in Nebraska’s Medicaid program if LB577 is passed.  Interestingly, all of the estimates I’ve seen are, at their lowest, almost twice that of the 54,000 figure that’s being bandied about by the supporters of LB577.

Generally, there are three groups of people that potentially will be brought into the program, at least by 2014 when the ACA becomes fully armed and operational:

The bottom line?  More people equals more cost.  If the fiscal analysis Senator Kathy Campbell refers to in her positive remarks about the affordability of the expansion is only anticipating a total increase of 54,000, comprised of the currently uninsured and ineligible, it certainly understates the numbers affected by ignoring the other two groups discussed herein.  I can’t verify one way or another because, at this writing, the fiscal analysis she has referred to is not available on the Unicameral’s website.  So much for transparency in government.  But one thing is obvious to any thinking person: LB577 and the ACA have the potential to interact to create a perfect storm that would sink Nebraska’s budget.  It would behoove our elected officials to err on the side of caution.

. . . ain’t nothin’ but too good to be real . . .

3.  The federal government has welched on promises to pick up the tab for other programs and left states, and their budgets, high and dry.  The principle example of this is the promised levels of federal funding that states were assured they would receive when the Education for All Handicapped Children Act was passed by Congress in 1975.  One part of this Act authorized Congress to provide up to forty percent (40%) of the average per-pupil expenditure incurred by the states.  However, federal funding has never reached fifteen percent (15%), leaving local school districts scrambling to fund the remaining costs of mandated special education services.

Governor Heineman has questioned the strength and veracity of the federal government’s commitment to fund the lion’s share of Nebraska’s Medicaid expansion in perpetuity.  He has even cited the feds’ failure to follow through on a similar commitment made when the special education legislation, discussed above, was enacted.  But proponents of LB577 dismiss Heineman’s concern, saying that the federal government has never failed to come across with Medicaid matching funds.

Only someone with a very short memory would dare to minimize the risk.  The federal government’s funding commitment could very well prove to be a bait-and-switch – formerly

“There already is evidence that could be the administration’s plan. President Barack Obama proposed reducing federal Medicaid spending by $100 billion over 10 years during last year’s [2011’s] “supercommittee” budget negotiations. He proposed changing the traditional federal Medicaid matching rate in a way that would lead to a smaller overall federal contribution to the program—and a larger state-based one.”

At some point, the entitlement mentality will become an irresistible political force that will impact the immovable economic object of fiscal reality.  Even in D.C.  When that happens, promises to pay and pay and pay for anything forever into the future will not be worth the paper they’re written on.

Thank you for staying with me to this point.  Unfortunately, supporters of LB577 have offered a number of other financial arguments which can, and should, be disputed and discredited.  I will take them up in a subsequent article.

Author’s Note: This is the eighth in a series of articles about Nebraska’s Medicaid program, the Unicameral’s apparent intent to expand it, and the many reasons why expansion is an uncommonly bad idea. Although they don’t have to be read in order, here are links to the previously-published articles in the series:

Image Credit & Copyright Notice

Images in the post were found at the following links…

Diamonds on the soles of my shoes formerly

Raining dollars formerly

Pot of gold at rainbow’s end

Footnotes, References & Citations
  1. As I noted in the second article in this series, Nebraska DHHS officials project an eight percent (8 %) increase in Medicaid eligibles by 2014, and that’s without taking the “woodwork” factor into account.  If even half of the forty-three percent (43%) of Nebraskans who are currently eligible but non-participating sign up for Medicaid coverage by 2014, added to the current projections, the total number of participants in the program would balloon by over 107,000 people, an increase in the size of the Medicaid population of forty-five percent (45%).  Program costs would necessarily skyrocket.

About Grassroots in Nebraska (GiN)
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