ACA redistribution via Medicaid: what it means for future reform

The self imposed redistribution from mostly poor (mostly red) states, to mostly rich (mostly blue) states via the ACA Medicaid expansion is a direct result of the June 2012 Supreme Court ruling that made it voluntary.

That 7-2 court decision, and the subsequent state decisions, mean that the primary liberal/progressive health reform goal of expanding insurance coverage is being thwarted in some of the most needy states. Liberals/progressives have two choices: fight out the state-by-state Medicaid expansion decisions, or seek a health reform deal with conservatives that would be more likely to expand coverage in the non-expanding, poorest states, sooner. The first is not a pleasing outcome, and the second seems like a political impossibility.

This result was likely inevitable given the SCOTUS decision coupled with the re-election of President Obama; as I said in my post the day the decision was released:

…in the Medicaid aspect of the ruling the court identified the penalty of losing all of your states’ Medicaid funding if you don’t undertake the prescribed Medicaid expansion, to be something that the Federal Government could not do because it would be coercive to states. While this may seem to Conservatives a bit like the question “other than that Mrs. Lincoln, how was the play?” in the long run I suspect this precedent will be important going forward in policy debates.

Leaving the Medicaid expansion in place, while allowing states to not undertake the expansion without losing all medicaid funding has set up a fascinating test of ideology v. financial self interest for Conservative states. People’s lives are at stake here and I don’t mean to minimize that, but again, elections are important and I suspect what State politicians plan to do about the Medicaid expansions will be a key question in some states this Fall.

Reihan Salam has persuasively noted that a default insurance option is needed for health reform, motivated at least in part by the difficulties of I agree with him–if I could do just one thing to the ACA, it would be to add such a default option.

However, I have long felt that a political deal on health reform was needed, and such a deal was at the heart of a book I put out in September 2011 that claimed to identify a health reform deal between Democrats and Republicans, that had at its heart replacing the individual mandate with a default insurance option in the form of universal catastrophic health insurance implemented via the Medicare program. My overriding political point in Fall 2011 was that a Super Committee deal that made the SCOTUS case go away could have removed the doomsday outcome for both sides. We didn’t get such a deal, and also got a mixed SCOTUS decision, that has lead directly to an uneven Medicaid expansion.

My proposed deal is not a liberal/progressive dream, but then neither is the uneven Medicaid expansion.

Paradoxically, a SCOTUS ruling that had struck down the individual mandate as unconstitutional and invalidated premium supported private insurance sold in exchanges but that left the Medicaid expansion untouched would have produced what would have seemed like a bigger loss for Democrats at the time, but that would have at least resulted in all persons up to 133% of the poverty level being guaranteed health insurance. From such a base, the parties could fight another day and the red states, especially in the South, could have continued their tradition of saying they hated the federal government (all the way to the bank). But that is not where we are, so where do we go from here?

I think Liberal/Progressive reformers need a health reform deal because of the uneven Medicaid expansion, but we are in a difficult position because we have no control over the the biggest block to a health reform deal: the fact that elected Republicans do not hold any coherent health reform position(s) for which they are willing to vote (old posts here, here, here, here, here, etc)

It takes two sides to make a deal. This doesn’t mean there aren’t conservative intellectuals with reform ideas–Capretta, Moffit, Ponnuru, Roy, Salam, Douthat and others–these are thoughtful people with ideas that I think are reasonable to differing degrees. But whatever I think of them, some amalgamation of their ideas desperately needs to meet the Republican-controlled Commerce Committee in the House of Representatives, ground zero for any actual health reform effort; and then the CBO.

I think that all of these intellectuals realize that the Republican party is the only way for their ideas to reach legislative fruition, and they know that eventually the Party will have to be for something in health reform. And I believe they are quietly working towards making this case within the Republican Party. The entire country, but especially Liberals/Progressives who know that more must be done on health reform, should be rooting for them to succeed.

Update: while I wasn’t attempting an exhaustive list of conservative public intellectuals with reform ideas, I should definitely have included Yuval Levin.

ACA: self imposed redistribution from poor to rich states

At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare, and 21 have rejected expansion, while 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones).

According to an analysis I have done using Kaiser Family Foundation data–in 2016 alone–the 24 expanding states will receive $30.3 Billion additional federal dollars, while those not expanding will forego an additional $35.0 Billion they could have had (the fence sitters have an aggregate $15.2 Billion at stake in 2016). This represents a huge redistribution of federal money from non-expanding to expanding states. The table below highlights the biggest self imposed losers, and winners, again for 2016 alone (there are predictable impacts on state uninsured rates).

ScreenHunter_04 Oct. 25 14.45

Note: total is for all states in foregoing & gaining group.

Most states will also have increased spending if they expand Medicaid; for North Carolina, in 2016 Kaiser estimates that the state will have to spend $390 Million to leverage around $4 Billion in extra federal money, and reduce the ranks of the uninsured by around 375,000 persons (about 475,000 more would be covered by Medicaid). To put the foregone $4 Billion in context, North Carolina’s total Medicaid budget in fiscal year 2014 is around $14 Billion, and there is certainly no alternative proposal as impactful on the uninsured in my state at any cost.

States that are not expanding Medicaid have historically received more in federal spending per dollar of federal taxes paid by the state ($2.18) as compared to States that are expanding ($1.85) and those that are considering expansion ($1.53), all in 2009, a year with a very large federal deficit. In year 2000, the last year of a federal surplus, those states rejecting expansion received $1.36 in federal spending per tax dollar paid as compared to $1.10 for those undertaking expansion (the fence sitters were net donor states, $0.87). Similar patterns held in both 1994 and 2004 (other years shown in this table I put together using IRS & Kaiser sources Tax Flows Table.10.25.13_blog).

While the Medicaid program is not the only means through which richer states have cross subsidized poorer ones, it has been a large and consistent source of such flows. By choosing not to expand Medicaid, the poorer, mostly politically “red” states are redistributing money toward the richer, mostly politically “blue” ones (there are exceptions; red Kentucky is both expanding Medicaid and has one of the best functioning State exchanges). Further, those States that are expanding Medicaid have also tended to set up state-based insurance exchanges, which are currently operating much better than the federal one, meaning that income based subsidies associated with the purchase of private health insurance may flow less freely to poorer states, at least in the short term. And there is a court case that could stop the flow of such subsidies to states not operating their own exchange all together. I have not tried to estimate the magnitude of these sources of redistribution from poor to rich states under different scenarios because things are so fluid, but the Medicaid numbers outlined are potentially just the start.

The bottom line is that if the current State Medicaid expansion decisions persist, the unintended story of the ACA will turn out to be the redistribution of money from poorer States, to richer ones, an outcome imposed by the poorer states, upon themselves. I will write more about what I think this means for the future of health reform over the next few days.


Note: I was assisted by excellent research assistance from Callie Gable, a Duke Undergrad. Any errors are my responsibility, however.

The cost of States not expanding Medicaid. Kaiser Family Foundation, July 2013.

Internal Revenue Service (IRS) report Internal Revenue Gross Collections, by Type of Tax and State, for Fiscal Year 2009

Internal Revenue Service (IRS) Federal Funds – Summary Distribution, by State and Island Areas : 2009

Has the N.C. Medicaid Reform Advisory Group been appointed?

Randall Williams seems to think so. In an op-ed on Medicaid reform in the News and Observer this morning, Dr. Williams who was a member of Governor McCrory’s transition team says:

To decrease costs, the governor has proposed privatizing Medicaid and increasing competition among managed care plans. Currently, a five-person panel – one member selected by the state Senate, one by the House and three by McCrory – is studying the issue. Whatever the panel recommends and the governor and lawmakers decide, health care quality, access and costs are going to be major challenges for North Carolina and our country.

I have written about this Medicaid Reform Advisory group, created by the Budget passed this Summer, which is to provide Medicaid reform options to the General Assembly by March, 2014. At the October 8, 2013 General Assembly hearing looking into the actions of Secretary Wos, this commission had still not been publicly named, at least according to public statements by the Governor’s press office.

Is Dr. Williams correct, that the group has been appointed and is working, yet their identity is unknown to the public, or did he misspeak in the op-ed?

Update, via twitter, WRAL reporter Mark Binker:

No word on the Senate. Update 2: Mark Binker @binker says the Senate Pro-Tems office says that he has not made the appointment yet.

Is Gov McCrory going to get rid of CCNC?

I got the following email this morning, and have gotten a version of it from many people, so I decided to blog the answer:

I have been trying for months to understand McCrory’s new Medicaid proposal and still don’t get it. So I wanted to know if you’d please answer one question: Are they getting rid of CCNC, or not? Thanks so much.


Dear XX

In short, I doubt it.

The plan they have articulated is overly grand and if they pulled it off would require:

  • 3-4 insurers, delivering full Medicaid benefit package [think prenatal care to Nursing Home for person with Alzheimers; tons broader than ACA benefit package],
  • for all Medicaid beneficiaries,
  • with each insurer enrolling patients in all 100 counties,
  • and quality would stay at least the same or get better)
  • At a price that would save North Carolina money as compared to what we would have paid

Doing this would represent the grandest reform in the history of health policy in the U.S. Keep in mind that only BCBS N.C. is selling ACA exchange plans in all 100 counties. So, they need two or three more to sell a broader benefit package than that covered in the ACA, in all 100 counties to achieve their aspirations.

To give you a sense of how grand the plan is (and it is vague; they are smart if they start to walk back the grand nature of it), If CCNC said they wanted to be 1 of the 4, they would have to

  • Add the insurance function to their organization. This is another way of saying they would have to be capitalized, or to have enough $ on hand to take on the risk involved with signing people up and saying you are financially responsible for their care. They could get the money from Wall Street, the State, or be bought out.
  • In addition to the financial issues, CCNC would have to develop a network of providers to deliver the full Medicaid benefit package. Since CCNC is a primary care delivery network, this means they would have to get contracts for specialty physician services, hospital care, nursing homes, mental health and on and on. Think, very hard. Think, mind numbingly hard in all 100 counties.

If this went ahead (have a bidding process to deliver the above), then I suspect someone would buy CCNC and brand their Medicaid Managed care plan using the name/reputation of CCNC.

If CCNC joined forces with Blue Cross/Blue Shield they would have the best chance chance of pulling off the requirements. An outside company planning to come in and battle Blue Cross/Blue Shield N.C. plus CCNC UNDER THE RULES NOTED ABOVE UNDERLINED, would be a fool (I don’t want to own their stock). If they change the rules under which bids are taken, which I expect them to do, it is a different story. If only a subset of beneficiaries are put into managed care, then cherry picking is possible, and this is the specialty of Medicaid Managed Care, which is an old, not a new story.

Paradoxically (in the sense I am sure this is not what the Republicans were dreaming about) the other state based entity who could be uniquely set up to try the grand vision articulated in the Partnership for a Healthy North Carolina, would be the State Employees Health Plan…they have members in each county and BCBS runs the claims (it is a self insured plan) so in that sense they have information about just about every provider in North Carolina.

Here is a series of blog posts I have written about the plan

Hope this helps.


North Carolina’s nascent Medicaid reform VII: new advisory panel

This is the seventh post in a series on North Carolina’s nascent Medicaid reform, Partnership for a Healthy North Carolina, a reform option being pursued even as North Carolina does not proceed with the Medicaid expansion available in the ACA.

I am skeptical of the plan, but am granting the benefit of the doubt and trying to work through some key issues and asking questions about it in the hopes of helping to move Medicaid reform ahead. The posts in this series are marked with the tag NC Medicaid Plan.


Dan Way has a post on the Medicaid Reform Advisory Board that was created by the passage of the North Carolina Budget in July, 2013, that is to put the meat on the bones of North Carolina’s nascent Medicaid reform approach, Partnership for a Healthy North Carolina. As the above linked 6 posts show, I have lots of questions and doubts about the outline of the plan as I understand it, but it remains quite vague and this 5 person advisory board appears to be the next step toward clarity which is a good thing. Several points about this committee (created by sec SECTION 12H.1.(e) of the budget, p. 162):

  • At 5 members, it is lots smaller than the mid-June proposed 22 member panel from the House deliberations. All else equal, a smaller panel is more likely to develop a recommendation to move toward action than is a larger board. 2 of the 5 members are to be members of the General Assembly who are appointed (one each) by the Speaker of the House, and the Leader of the Senate, while the Governor appoints the other 3 members. Any recommendation proposed by this Board can be made law during the short session in May-June 2014. All signs point to this Board being a step toward action.
  • Recommendations are due to be submitted to the General Assembly for legislative approval no later than March 17, 2014.
  • Three broad charges are provided to the committee: (1) stability and predictability in budgeting; (2) making it easier for providers to use the system; and (3) integrating physical and behavioral health care for patients.
  • There are a variety of other items this committee will undertake, including $100,000 provided to the State auditor to undertake an evaluation of Community Care North Carolina (CCNC).

There are quite a few mistakes in the post, or at a minimum, ways of interpreting the past experience of Medicaid (and some are quotes of others, in fairness to the blog poster) that are not how I would put things. However, I am going to let these pass and not comment on them at this time, because the formation of this committee is the start of the Republican majority in North Carolina moving beyond only talking about the problems with the system they say they inherited, and toward them committing to the details of what they are for in Medicaid reform. And that is a good thing.

update: I revised for clarity

Three insurers will offer plans in the North Carolina ACA marketplace

It turns out that only three insurance companies will offer plans in the North Carolina ACA marketplace in which individuals can buy subsidized coverage based on their income beginning October 1, with Blue Cross Blue Shield being the only one to offer plans in all 100 North Carolina counties (FirstCarolina will focus on 6 counties, and Coventry on more, but not statewide). The reality of the insurance choices will differ by State–a feature, not a bug of the ACA–but it means that residents in some North Carolina counties will only have one choice of insurance plan, which is much the reality today (BCBS NC is the dominant insurer. In the long run, the number of insurers is a key issue in determining how well a system of individuals buying their own private health insurance with subsidies will work.

This issue is relevant for North Carolina’s nascent Medicaid reform effort as well (link to a series of 5 posts I have written on it) since a key aspect of the plan outline is having “3 or 4 entities” provide the full Medicaid benefit package in all 100 North Carolina counties, thereby providing beneficiaries with a choice. The benefit package provided by the Medicaid program is far broader than is the benefit package that must be covered by plans offered as part of the ACA because of who Medicaid covers (not only acute care, but long term care as well).

For an insurance company to put together a network of providers to deliver the Medicaid benefit package statewide will be 10 times more difficult than pulling together a Medicaid network, because it must include long term nursing home care for persons with dementia, for example, with which no insurance company has any experience bidding (Medicaid now sets the floor price, with some self pay institutions being more).

It is not surprising that North Carolina will not have as much choice as part of the ACA out of the blocks as a State like California, for example, that now has a much more active insurance market than we do. However, the reality that only Blue Cross Blue Shield NC is offering policies statewide underscores how unrealistic is the notion that we will find 3-4 to offer the Medicaid benefit package statewide in some future privatized Medicaid system.

N.C.’s nascent Medicaid reform V: what N.C. organizations could be an ‘entity’?

This is the fifth post in a series on North Carolina’s nascent Medicaid reform, Partnership for a Healthy North Carolina, a reform option being pursued even as North Carolina does not proceed with the Medicaid expansion available in the ACA.

I am skeptical of the plan, but am granting the benefit of the doubt and trying to work through some key issues and asking questions about it in the hopes of helping to move Medicaid reform ahead. The posts in this series are marked with the tag NC Medicaid Plan.


There has been a battle over the messaging of the Partnership for a Healthy North Carolina plan, with critics using the phrase privatization and “wall street managed” care, while Secretary of HHS Wos and Medicaid Director Steckel insisted at the May 15 public hearing in Durham that the intent was not to have “outside Wall Street companies” come in and take over North Carolina’s Medicaid program.

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