Why We Should Worry About Massively Extending Medicaid

By Megan McArdle

Avik S. A. Roy

Michael Kinsley once famously described a gaffe as when a "politician tells the truth." In the think-tank world, a gaffe could be described as when a scholar tells the truth, in ways that the think-tank's friends and allies won't like.

Such is the case with the recent article by Chapin White, which I discussed here. White's paper finds that expansions of the Children's Health Insurance Program -- a government-run health insurance program similar to Medicaid -- did not result in a net increase in the utilization of health services; i.e., in overall access to health care. This result calls into question the wisdom of expanding Medicaid, as the Affordable Care Act does.

Chapin White's think-tank home, the Center for Studying Health System Change (HSC), produces some of the most interesting research out there on Medicaid beneficiaries' poor access to health care, White's piece included. But HSC has pro-PPACA leanings. Its Advisory Committee includes Ronald Pollack of Families USA, a pro-PPACA activist group, and John Rother of the National Coalition for Health Care, another pro-PPACA advocate. HSC's current and past research sponsors include the leading pro-PPACA foundations, such as the Commonwealth Fund and the Kaiser Family Foundation.

At a time when the White House is rallying pro-PPACA activists like Pollack to improve the law's public standing, I appreciate that I am causing White and HSC some headaches by citing their research as a critique of the law. But the implications of White's work on Medicaid are what they are.

I write all this as a preamble to a post by Austin Frakt, in which Austin reproduces an email to him from Chapin White in which White says that I "misrepresent" both his paper's findings and also the Affordable Care Act. But White's actual objections to my piece are more like quibbles, as I will detail below. You can read his paper for yourself, and decide whether you think I've done it justice.

White says I misrepresent his paper in two ways. The first problem is that I state that White's paper "suggests that a critical part of the Affordable Care Act--its expansion of Medicaid coverage to 16 million more Americans--may actually reduce those individuals' access to health care." White points out that he found "the effects of CHIP expansions on indicators of access are mixed," which, he says, does not support my statement.

But White does a great job, in the paper, of pointing out how CHIP tends to reduce access to care. "CHIP plans tend to employ managed care tools, such as gatekeepers and closed panels, much more intensively than private plans," he writes. "CHIP expansions also appear to reduce the average payment rate that physicians receive." A survey from Ingenix Consulting that White cites found that the "national average payment rate for a physician office visit was $81 for a privately insured child versus only $47 for a child enrolled in a public plan (Medicaid or CHIP)." White also cites the Gruber and Rodriguez study that shows that doctors gain more revenue from the uninsured than from patients on Medicaid and CHIP.

White's own study finds that "increasing Medicaid physician fees is more clearly associated with improvements in access," which is a polite way of saying that reducing fees is associated with declines in access. He also notes that "budgetary surpluses and shortfalls appear to be the main factors prompting states to change their Medicaid fees."

White doesn't explicitly state what we all know--that state budgets are collapsing under the pressure of Medicaid's growth, and that PPACA's dramatic expansion of Medicaid will therefore ultimately force states to continue to reduce Medicaid fees. And reduced fees, White's study confirms, are correlated with poorer access to care.

White's second objection is that my post "incorrectly characterizes [his] paper as finding that 'physician utilization was lower in the states with the largest CHIP expansions,'" pointing out that he wrote that "the results on doctor visits are not precisely estimated due to the variability in the underlying measure."

However, in my piece, I explicitly described the overall impact on utilization as a "non-effect," and quote White directly as describing CHIP expansions as being "not associated with any change in the aggregate quantity of physician services [consumed]." It is nonetheless true that, as a numerical trend, White found that the number of physician visits declined by 1.1 percent from 1997-1998 to 2008-2009 in states with large CHIP expansions. Hence my statement that "surprisingly, physician utilization was lower in the states with the largest CHIP expansions."

White also says that I misrepresent our new health law in "two key ways." The first is that my article "ignores the fact that the ACA [increases] primary care physician fees in Medicaid beginning next year." But White implies, incorrectly, that these increases are meaningful. The PPACA fee increase to which he refers raises Medicaid reimbursements to (declining) Medicare rates in 2013 and 2014 only, then reverting to Medicaid's older, lower rates in 2015. One of White's colleagues at HSC, Peter Cunningham, described it this way: "The temporary nature of the rate increase may limit the incentive for more physicians to accept Medicaid patients."

White's final objection is his fairest one. He argues that the Medicaid expansion will take place mostly in the bottom income quartile, rather than in the third-lowest quartile as I wrote, and that I therefore overstate the potential for a "crowd-out" of private insurance by Medicaid. But the difference here is a matter of degrees: in the fourth quartile, expansion of CHIP by two children was associated with the loss of private insurance by one child. While he's right that the crowd-out is smallest in the fourth quartile, it's still significant.

Finally, here are two of the concluding paragraphs in White's paper (emphasis added):

In general, these findings argue strongly against the idea that the effect of expanding coverage on utilization can be deduced simply from the reduction in patient cost sharing. The nature of the coverage--for example, does the coverage consist of a tightly managed product? does the coverage pay providers generously?--appears to be critical.

From a federal budgetary perspective, these results are good news-- if we extrapolate from the results in this article, the expansions of public coverage called for in PPACA will not have any effect on aggregate utilization of physician services. From the enrollee's perspective, the results are mixed--the benefits of expanded public coverage may lie primarily in improved financial protection, rather than a sheer increase in services received. These findings also support the idea that public health insurance plans can have spillover effects on children who do not themselves gain coverage, and that those spillover effects can either increase utilization (if the public plan's reimbursement environment is made more generous) or reduce utilization (if coverage is expanded without making reimbursement more generous).

It's a solid paper. And its findings are worrisome for those who think that massively expanding Medicaid is a good idea.

Follow Avik on Twitter at @aviksaroy.

This article available online at:

http://www.theatlantic.com/business/archive/2012/03/why-we-should-worry-about-massively-extending-medicaid/254400/