Using Medicaid Dollars for Private Insurance
The Obama administration and Republican officials in several states are exploring ways to redirect federal money intended to expand Medicaid, the main public insurance program for the poor, and use it instead to buy private health insurance for Medicaid recipients. The approach could have important benefits for beneficiaries and for the future of health care reform. But the idea also carries big risks. Federal officials will need to enforce strict conditions before agreeing to any redirection of Medicaid dollars that were originally intended to enlarge the Medicaid rolls.
The Supreme Court ruled last year that the states could decide whether they want to expand their Medicaid programs to cover more of the uninsured; they can’t be required to do so, as the health reform law intended.
The law provides hugely attractive financial incentives for states to add more people. The federal government will pay 100 percent of the cost of caring for newly eligible enrollees for the first three years, tapering to 90 percent in later years. Even so, some state officials, mostly Republicans, are proposing that the very generous federal financing for expansion be used instead to pay the premiums of poor people on new electronic health care exchanges, created by the reform law, where people can shop for subsidized private insurance.
Private insurance obtained on the exchanges could help poor beneficiaries in several ways. They would be less vulnerable to disruptions every time their incomes fluctuated above or below the boundary line that determines whether they are poor enough to qualify for Medicaid, where they would see one array of doctors, or slightly better off and eligible for subsidized insurance on the exchanges, where they might see a completely different group of doctors. Providers would be paid the same amount whether treating a Medicaid recipient or a privately insured patient, potentially creating a wider network of doctors for Medicaid patients. And some poor residents of states resistant to expansion, who would otherwise be frozen out by a glitch in the reform law, could gain coverage through the exchanges.
But the main benefit would be political in that it could engage Republicans in the whole health reform effort, make it easier to carry out the law and reduce the appetite among Congressional Republicans to gut the law.
There are at least two big caveats. The switch would be likely to increase costs for the federal government, and ultimately state governments, because private insurance is almost always more costly than Medicaid. That could force a cutback in the number of people covered because the money won’t go as far. There is also a risk that poor people will end up with fewer benefits and higher cost-sharing on the exchanges despite regulations that should prohibit that.
Federal officials must be vigilant in ensuring that recipients on the exchanges receive the same services and same cost-sharing limits that they would under an expanded Medicaid program. State officials who don’t want to play by those rules would be better off using the generous federal dollars as originally intended — to expand their Medicaid programs to cover many more of their uninsured residents.