Gallup Confirms Obamacare Increased Welfare Dependency

I did not bother to discuss Gallup’s July update on the drop in uninsured Americans, because it was substantively the same as the teaser released in March, which showed most of the increase in health insurance was actually Medicaid, which is welfare dependency.

Gallup has just released a state-by-state report, concluding Medicaid expansion and establishing a state exchange almost doubled the reduction in uninsured. Of the two, I cannot imagine setting up a state exchange is a big factor, because beneficiaries get the same tax credits in state or federal Obamacare exchanges. Obamacare mostly increased Medicaid dependency.

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  1. Erik says:

    Nice Spin.

    Here in California childhood vaccines are now mandatory for all children to attend school which is a public good and right.

    Where is the money to come from to vaccinate these children? Or do these children not get educated because they cannot afford the vaccinations?

    • Don’t quote me, but I have a very favorable opinion of vaccination. I have a less favorable opinion of the currently structured government schools as a “public good” (unless you mean the vaccinations are a public good).

  2. John Fembup says:

    It should come as no surprise that most formerly uninsured Americans are poor / low income and therefore Medicaid is where most of the formerly-uninsured have turned for coverage under Obamacare. I don’t have a particular problem with that. What else is there for the poor? But there’s always more to the story.

    Almost 10 years ago, the Kaiser Family Foundation Commission on Medicaid and the Uninsured released this Issue Paper:

    http://www.kff.org/uninsured/upload/7571.pdf

    Table 1 in the Issue Paper shows that people below 2X’s the federal poverty level comprised about 65% of all uninsured, non-elderly Americans in both 2004 and 2005.

    Seems to me this fact demonstrates two things: (1) in 2005, the uninsured problem in the US was primarily a creature of poverty and (2) by 2005 Medicaid, the government program created specifically to address needs of impoverished Americans, was failing rather spectacularly in its mission.

    Because 2/3 of the uninsured were below 2Xs FPL the core of the problem was how to cover the uninsured poor. Any way we cut this, the core of the solution has to involve Medicaid. And so it does. Again – no one should be surprised by this.

    However, it is ironic that the administration used “the crisis of the uninsured” as political cover to create Obamacare, when the alternative of fixing the existing government program – i.e., Medicaid, without all the other Obamacare superstructure – could arguably have delivered equal or better coverage of the uninsured poor at less cost. But that alternative was never a meaningful part of the debate.

    By the way, and based on the Kaiser figures if all the nonelderly below 2X’s the federal poverty level in 2005 had been enrolled in Medicaid, the proportion of uninsured Americans would have been less than 6% of the total population. I think it’s doubtful that a 6% uninsured rate would have been considered a “crisis”.
    This information was obviously available when Obamacare was being designed; but it was, equally obviously, ignored. I would not call that ironic; it’s shameful.

  3. Barry Carol says:

    John –

    If we attacked the uninsured problem by simply expanding the income threshold for Medicaid eligibility to 200% of the FPL from a much lower level in most states, the key issue would, of course, be the cost of doing that and, secondarily, how that cost would be allocated between the federal and state governments. At today’s healthcare costs, I suspect that covering those additional low income uninsured people would cost about $4,000 per person per year. If 30 million of the 45-50 million previously uninsured before the ACA became newly eligible for Medicaid, it would cost about $120 billion per year to cover them (30 million x $4,000 each). Medicaid eligibility was only expanded to 138% of the FPL instead of 200% presumably because of cost considerations.

    It would have been nice to avoid all the rest of the ACA superstructure by attacking the problem this way but the financing would have been a challenge to put it mildly especially with Republicans so vehemently opposed to tax increases. ACA subsidies, by contrast, are only running at about $2 billion per month. High income people are paying the new higher 0.9% payroll tax on incomes above $250K and the 3.8% surcharge on investment income if total income is above $250K as well (for joint filers). The tax on health insurance premiums and medical devices are a much easier sell politically and passed through to insurance premiums and the cost of medical devices in any case. Medicaid spending is also up significantly but not nearly as much as it would have been if eligibility were raised to 200% of the FPL.

    • Thank you for pointing out the split between state and federal financing. What single-payer advocates who point to Canada never seem to point out is that the federal government has a small role in financing the system and an even smaller role regulating it.

  4. Barry Carol says:

    I should add that for the low income uninsured, Medicaid is a heck of a lot better than no insurance at all especially if they need hospital based care. For the hospitals, which claim that Medicaid only pays them 70% of their costs on average, being paid 70% of costs is also a lot better than nothing (uncompensated care). Significantly reducing uncompensated care should also reduce the amount of cost shifting hospitals have to do to, in effect, collect Medicaid’s underpayments from the commercially insured non-Medicare population.

    • In some cases Medicaid is better but in many (perhaps most) there is no effective difference (see http://healthblog.ncpa.org/mars-and-venus-on-medicaid/).

      As for cost shifting, I’ve never really bought that argument: We should assume hospitals segment their markets and seek to maximize profits in each segment, like any other business.

      (In a previous generation, when these hospitals were founded by religiously motivated people, they thought the purpose of the hospital was to serve society, not that the purpose of society was to serve the hospital. But that was a long time ago.)

      • Barry Carol says:

        Most non-profit hospital CEO’s will tell you “No margin, no mission.” If Medicaid only pays them 70% of their costs and Medicare pays around 90% of costs and there is uncompensated care in the mix as well, the only way to fully cover expenses is to charge private insurers well above costs.

  5. John Fembup says:

    But in any case most of the reduction in uninsured must come from coverage of the poor, and that necessarily means increased Medicaid enrollment. No one should be surprised by that.

    ACA forces the general public to pay excessive premiums to help finance the increased Medicaid enrollment – and avoids calling the excess premiums a “tax”. I think what I suggest would Finance the new Medicaid enrollment with higher taxation, and call it higher taxation.

    • Barry Carol says:

      In a fundamental economic or healthcare / health insurance policy context, I agree with you. We should expand Medicaid to take care of the poor and explicitly accept higher taxation, including higher taxes on the middle class, to pay for it.

      The problem, as is so often the case, is getting sensible policy through the political process. Republicans strongly oppose higher taxes while conservatives and libertarian types are also quick to decry increased welfare dependency. I can’t see a viable market solution to insure low income people without huge subsidies and private charity is nowhere near up to the job.

      • John Fembup says:

        Barry, yes, huge Medicaid subsidies are necessary. That’s true whether we call them “taxes” paid by the general public – or “premiums” paid by the general public. I actually don’t have a particular problem with subsidies per se. What else is there for the poor?

        Anyway, my main point is that it’s no surprise Obamacare reduces the numbers of uninsured by extending Medicaid to the poorest Americans. Because, in a Willie Sutton sort of way, that’s who the uninsured (mostly) are.

        You have obviously given this a great deal of thought. I simply think Americans would have benefitted from this kind of thinking prior to the passage of Obamacare.

        Of course what’s done is done. Unless of course it’s undone.

  6. Barry Carol says:

    John –

    Again, I agree with you though I think both expanding Medicaid and extending subsidies to those who are somewhat above the Medicaid income eligibility threshold and expensive to help insure older folks (mainly the 55-64 group) and those with pre-existing conditions that would have made them uninsurable under the old medical underwriting standards are probably necessary to fully attack the problem of the uninsured.

    I don’t have a problem with subsidies either nor do I have a problem with paying somewhat higher taxes, which I’m already paying under the ACA, to resolve the issue. Doing away with pre-existing conditions in favor of guaranteed issue also requires a mandate to purchase or people will just wait until they get sick to buy health insurance. I also think insurers should have been allowed to charge older people up to five times the premium younger people pay instead of three times to more accurately reflect the medical claims costs they are likely to incur and I think it may have been all right to set the minimum coverage standard closer to a 40% actuarial rating as I think Avik Roy proposed instead of the 60% rating that the ACA requires.

    I like the idea of capping an individual’s premium cost at some reasonable percentage of income (9.5% under the ACA for those above 300% of the FPL) and I would have done away with the 400% of FPL cap for subsidy eligibility followed by the immediate (cliff) phaseout at 401% of the FPL and above. All of this would have driven the estimated cost scored by the CBO well beyond what politicians claimed they were willing to stomach when the ACA was passed but so be it.

    That’s closer to what I think it would have taken to do the job right while protecting young people from exorbitant premiums relative to their actuarial risk and older, sicker people from both extremely high premiums that they couldn’t afford without subsidies and not being able to buy coverage at any price if medical underwriting were still allowed.

    I also would suggest that the MLR rules are unnecessary because the insurance industry is competitive enough as it is though the 3 R’s were necessary for a limited time until insurers gained experience in pricing policies in a guaranteed issue world.

  7. Bob Hertz says:

    As Barry points out, some portion of that $120 billion a year for a complete expansion of Medicaid would have to come from the states….if not right away, then within a few years.

    States have to balance their budgets, and some of the states with large potential Medicaid expenses do not even have an income tax.

    Add to this the fact that state legislatures can be dominated by harsh fiscal conservatives, due voting patterns or redistricting or whatever. I recently read John McDonough’s account of recent health reform, and he has a page about the debate in one Southern state senate about Medicaid. You had the hospital lobby pressing hard for expansion, you had the media pressing for expansion, you had many protest groups………and the state senate would not budge, nor were they driven from office.

    One can call this the saving grace of states’ rights, or one can call it an antiquated mess……..either way, Medicaid will always be hard to expand unless it is federalized some day.

    • Barry Carol says:

      Bob –

      I actually expect Medicaid to be federalized eventually though with a strong role for managed care similar to Medicare Advantage under the Medicare program. I can envision a federal takeover of Medicaid financed by a new value added tax. The states will be told to use the freed up money to, first, fully fund their unfunded pension liabilities and use the remaining funds to cut state and local taxes.

      Ideally, part of any such deal would also require states that have constitutional restrictions on changing pension and retiree health insurance benefits for current employees to amend their state constitutions to allow benefit cuts based on FUTURE SERVICE but not prior service if passed by the legislature and signed by the governor. Pension benefits and retiree health insurance benefits should NOT be subject to collective bargaining in my opinion.

  8. Uwe Reinhardt says:

    Should anyone knowing about

    1. our growing income inequality in this country
    2. the ever rising cost of health care, not only in specialty drugs but across the board

    be surprised that the so-called “welfare dependency” ratio has risen in the country.

    I’d throw in the tax preference under employment-based health insurance (including those at the NCPA) to get a more accurate measure of that dependency.

  9. Bob Hertz says:

    My own reading about Medicaid (and for that matter, food stamps) has made me aware of a very strong ‘woodwork effect.’
    i.e., when the government makes a stronger effort to publicize its programs and make it easy to apply for them, you see literally millions of people ‘come out of the woodwork’ and get benefits.

    In other words, the recipients were always there. They were economically speaking ‘welfare dependent,’ but just weren’t getting welfare before.

    I only bring this up to counter Dr Reinhardt’s statement that this is caused by rising inequality.

    However, the unpleasant fact remains that the USA has a large bloc of citizens (maybe 40 million families?) who do not make enough money to buy health insurance and at times not enough to buy a decent amount of food.

    Democrats may not be overjoyed about this, but they mainly see a source of new voters. Republicans are very dismayed by this, and their leading theorists like Charles Murray and the old George Gilder take a Malthusian approach — i.e. that welfare programs actually breed more welfare recipients.

    But Malthusian solutions are too harsh to discuss much in public. Look what happened to Mitt Romney when he made a pretty gentle Malthusian statement and was caught on tape.

  10. Rich Berger says:

    Here’s a look at the numbers in a little more depth -http://www.forbes.com/sites/robertlaszewski2/2015/08/17/has-obamacare-really-reduced-the-uninsured-by-16-million-and-continued-to-show-strong-growth/