Expanding Medicaid was the right move in the 80s and still is today

When the ACA was signed into law almost five years ago (time flies!), one of its cornerstones was the expansion of Medicaid in every state, to cover everyone with incomes up to 133% of the poverty level (plus a 5% income disregard, which essentially makes the threshold 138% of poverty).  That was to be implemented in 2014, and represented a drastic shift from the way Medicaid had operated until that point – prior to 2014, it was really only available for the disabled, the elderly (if they had few assets and a low income), and low-income children and pregnant women.  Some very low-income parents with dependent children qualified for Medicaid prior to 2014, but in most states, non-disabled adults without children were ineligible for Medicaid, regardless of how low their incomes were.

All of that was scheduled to change at the start of 2014.

But then in 2012, the Supreme Court – while upholding most of the ACA – ruled that states could not be forced to expand their Medicaid programs under the healthcare reform law.  And predictably, the states that were most ideologically opposed to the ACA quickly opted out.  As it stands now, 27 states and the District of Columbia have expanded their Medicaid programs.  There are several states that are actively discussing expansion and may move forward with it during the 2015 legislative session, but there are quite a few that are still strongly opposed to the idea.

For states expanding Medicaid, the federal government is paying the full cost to cover the newly-eligible Medicaid population through 2016, and states will gradually begin paying a small share starting in 2017.  By 2020, states will be paying 10% of the bill, and the federal government will be paying 90%.  The split will always remain at that level – in short, Medicaid expansion is a big financial win for state governments.

expanding MedicaidHappily, Colorado is among the states expanding Medicaid as called for in the ACA, on January 1, 2014.  The federal government is picking up the tab, and Medicaid enrollment increased by 360 thousand people here from the summer of 2013 through October 2014.  And by just halfway through 2014, Colorado’s uninsured rate had dropped to 11%, down from 17% in 2013.

But in the states that have opposed Medicaid expansion – which, ironically, tend to be the states that stand to benefit the most from the ACA if Medicaid expansion were implemented nationwide – lawmakers and governors often talk about the need to move away from “entitlement” programs and public assistance, claiming that expanding a program like Medicaid will just lead people into a lifestyle of dependence on government, and will disincentivize work.

But an interesting study that was just published by the National Bureau of Economic Research (NBER) indicates that maybe they’re not seeing the big picture.  It’s a long-term study that looked at the impacts of expanding Medicaid for children in the 80s, and the creation of CHIP in the 90s.  The study group includes kids born in 1981, ’82, ’83, and ’84.

The researchers used IRS data to track these kids from tax year 1996 through 2012, so the youngest children in the study were 28 by 2012.  Most parent do file taxes – even if their income is low enough that they have no tax liability – because the earned income tax credit (EITC) and the child tax credit can be received even if you’re not required to pay taxes, but parents must file a 1040 to claim them, and because you can’t get a refund on overpaid W-2 witholdings unless you file a return.  So the total sample size ended up being about 10 million kids (out of about 14.6 million who were born from ’81 – ’84) – those whose parents didn’t file taxes every year are not included.

Not surprisingly to those of us who see the benefits of access to healthcare – but probably quite surprisingly to those who deride expanding Medicaid as a disincentive to work and nothing more than a government handout – the study found that the kids whose eligibility for Medicaid and CHIP increased when they were young ended up paying more in total taxes by the time they were 28.  They were also more likely to go to college, less likely to die in early adulthood, received less in EITCs, and the women had higher cumulative earnings by the time they had reached age 28.

The increased tax payments from these now-grown children were extrapolated out through age 60, and the researchers found that by that time, the government will have recouped 56 cents of every dollar spent on childhood Medicaid/CHIP benefits – just through the higher taxes that these kids will be paying due to their overall better lot in life (better education, better health, higher income, etc.).

The fact that nearly half the states haven’t expanded their Medicaid programs sets up an obvious study that could be done at this point: Analyze tax data for Medicaid eligible people in the 27 states and DC where Medicaid has been expanded, and then compare it with the tax data from people in the coverage gap in states that haven’t expanded Medicaid (the coverage gap exists because people with incomes below the poverty level are not eligible for subsidies in the exchange; if their states haven’t expanded Medicaid, they have no realistic option for obtaining health insurance at all).  In the latter group, we could also include people who are currently eligible for exchange subsidies but would be eligible for Medicaid instead if their states were to expand Medicaid (income form 100% to 138% of poverty level).

My prediction:  the people who are Medicaid eligible will pay more in taxes over the next decade.  This doesn’t seem like rocket science.  Gaining access to healthcare helps people in a wide range of ways.  When you take care of the basic needs of living, it’s amazing what we humans can accomplish.  But when you condemn people to the endless cycle of poverty and make even healthcare an out-of-reach luxury, the chances of getting out of poverty aren’t great.

This study is a fascinating look at the big picture when it comes to Medicaid expansion.  Kids have a pretty solid healthcare safety net nationwide with Medicaid and CHIP.  But thanks to the ACA, we’ve now got an opportunity to expand Medicaid in all 50 states to provide those same benefits to all low-income adults.  For people who need more hard evidence and less warm-fuzzy “it’s the right thing to do” talk, the NBER study is an excellent look at the economic benefit for all taxpayers when health coverage was expanded in the 80s and 90s.

Expanding Medicaid now in all 50 states would probably similarly benefit all of us – not just the newly-eligible population.  And this is especially true when you consider the fact that 79% of Americans experience at least a year of economic insecurity – defined as income under 150% of poverty, unemployment, or reliance on public assistance such as SNAP (food stamps) – by the time they reach the age of 60.

Having a safety net like Medicaid available when you’re faced with serious financial challenges can make a world of difference.  And clearly, economic insecurity is a problem that impacts the majority of us at one point or another.  Expanding Medicaid in all 50 states means we realize that, and we’re willing to give one another a helping hand when it’s needed.  And most of us will eventually need it.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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