The Medicaid Mess: How Obamacare Makes It Worse

The Patient Protection and Affordable Care Act (PPACA) is designed to extend health-insurance coverage to tens of millions of uninsured Americans. Rarely is it mentioned, however, that Medicaid, the government-run health-insurance program for the poor, will provide more than half of that new coverage under the law. The PPACA assigns Medicaid this central role, despite long-standing concerns about Medicaid’s costs and the quality of its care.

Under the PPACA, individuals and families with incomes between 138 percent and 400 percent of the Federal Poverty Level (FPL) will be eligible for generous premium subsidies and cost-sharing credits, which they can use to offset the cost of purchasing private insurance on state or federal insurance exchanges created under the law. Uninsured individuals and families with incomes below that level, but who seek coverage on the exchanges, will be automatically enrolled in existing—but significantly expanded—insurance coverage programs for low-income Americans, namely, Medicaid and the Children’s Health Insurance Program (CHIP).

The Congressional Budget Office estimates that the PPACA will reduce the nation’s uninsured population by 30 million. Seventeen million Americans are expected to be added to the Medicaid rolls, at a ten-year cost of $795 billion.[1] This core feature of the PPACA is one of the law’s most significant flaws.

Medicaid has been plagued by concerns about its quality, access, and financing virtually since its inception. The federal government matches state Medicaid funding at a rate adjusted by state income. Policy experts have long recognized that the program’s dual state-federal structure creates perverse incentives for states to rapidly expand Medicaid coverage and services, while shortchanging efforts to control waste, fraud, and abuse.[2]

Today, Medicaid poses a severe fiscal threat to many state budgets. Due to federal restrictions on Medicaid program management, state tools for managing Medicaid budgets are largely limited to adjusting payment rates for providers. Over time, this has resulted in severe underpayment of doctors and hospitals, preventing many Medicaid recipients from gaining access to basic and specialist health care. This access problem, in turn, leads to significantly worse health outcomes and higher mortality rates for Medicaid recipients when compared with private insurance and even Medicare.

This brief describes the inadequate health outcomes of Medicaid patients and how those outcomes are tied to the program’s penurious payments to health-care providers. It calls into question the wisdom of expanding this flawed program before enacting sustainable reforms that improve access and quality while responsibly controlling costs for state and federal taxpayers.

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