Once You Buy In, You Can Never Leave

A few years ago, my wife and I wanted to take our kids to Disney World. As I was looking into hotel reservations, the sales agent asked if I’d be interested in listening to a “special offer.” I did and decided to purchase the 4-day/3-night package for $150.

I knew there would be a hard sell in exchange for this offer. I knew they’d be asking me to buy into a timeshare. Being a researcher, I did my homework and compiled my questions. To be honest, I wanted it to work. I like to travel, I like to stay at nice places, and I like to save money. So I went into it with an open mind.

The more I learned about the timeshare program, however, the more I realized it wasn’t such a good deal. I figured I probably wouldn’t get into the properties I wanted. I realized it would cost more than it seemed. In particular, there would be escalating annual fees that would soon make participation unaffordable. In the end, I discerned I would have more choice, at a more affordable price, if I didn’t buy into a timeshare.

I’m not saying timeshares can’t work for some people. For most consumers, though, they aren’t a good option.

I think you know where I am going by now. When I look at Medicaid expansion, even a Medicaid expansion like the Healthy Indiana Plan or the Mississippi Cares Plan, it looks a lot like a timeshare offer.

These are five reasons why this offer is not a good deal for Mississippi:

First, there is the price tag. Medicaid expansion has been much more expensive in every state than predicted, even Indiana. According to the Foundation for Government Accountability, Medicaid expansion has cost states, on average, 157 percent more than expected.

Their solid research is backed up by years of experience in other states. Consider that in 2014, then-governor Mike Pence promised:

“HIP 2.0 will not raise taxes and will be fully funded through Indiana’s existing cigarette tax revenue and Hospital Assessment Fee program, in addition to federal Medicaid funding.”

By 2019, hospitals were begging the state to raise taxes to pay for Medicaid expansion. Declared the Indiana Hospital Association:

“Hospitals support HIP by paying a state-based Hospital Assessment Fee (HAF). In 2019, the total HAF will surpass $1B. The hospitals’ share is increasing at an unsustainable rate, and increasing the cigarette tax can help provide necessary relief to hospitals.”

The Legislature responded by raising multiple taxes and creating new ones. Noted the nonpartisan Indiana Fiscal Policy Institute:

“Lawmakers had to adjust their final calculations to account for lower predicted sales and income taxes and higher-than-anticipated Medicaid costs. They looked to broaden the sales tax base by targeting online transactions through ‘market facilitators’ and hotel booking sites, and passed a massive gaming bill in the waning hours before adjournment to bring a jackpot of casino licensing fees and wagering taxes.”

In Mississippi, Medicaid expansion is going to cost at least $140 million a year, likely closer to $180 million. Some estimates are that we can expect additional enrollment as high as 360,000. This will cost us probably $200 million a year. One problem is that this population could be pretty expensive to cover, unlike children.

By the way, Medicaid expansion only applies to able-bodied, working-age adults. It does not cover kids (CHIP already does that). It does not cover the elderly (Medicare already does that). It does not cover the handicapped or disabled (We already do that with multiple programs). Medicaid expansion is about insuring adults who either are working or should be working.

Based on this fact, we might also wonder whether part of the intent in expanding Medicaid is to encourage people to drop private insurance in exchange for government-subsidized insurance. Nor should we be surprised that this seems to happen in every state that expands Medicaid. In Louisiana, some estimates found 3,000 to 5,000 people a month were dropping private insurance to get on Medicaid. Another study states that more than half of potential Medicaid enrollees already have private insurance.

The second reason Medicaid expansion is like a timeshare is because it is being pushed as a one-size-fits-all solution to multiple, complex problems. (No, that timeshare will not suddenly make vacationing with your in-laws more enjoyable.)

There is an economic principle called the Tinbergen Rule. This rule states that independent policy objectives should be resolved by independent policy instruments. A recent paper by the National Bureau of Economic Research (NBER) points out in this context that using hospital payments to finance care for the uninsured is just plain dumb – and expensive. (Another NBER paper also verifies that hospitals (not the poor) are the primary beneficiaries of Medicaid expansion.)

In other words, the problems Mississippi hospitals claim are going to be addressed by Medicaid expansion would be better dealt with by using more targeted solutions, whether it’s providing health care to low-income families or helping rural hospitals adapt to changing demographics.

Third, just like that timeshare you “own” is not really yours, Medicaid is not really under Mississippi’s control. Medicaid is largely controlled by the federal government. Under the current administration, this means there is virtually nothing Mississippi will be able to do to limit Medicaid enrollment and costs. Consider that we couldn’t even get the Trump administration to approve a mild work requirement. The Biden administration will be even less inclined to approve any such reforms. Consider, also, that so-called free-market Medicaid expansions, like Indiana’s, will require a waiver from the federal government. But it’s a very safe bet that the only waivers the Biden administration will be granting are for projects that expand Medicaid costs and enrollment.

The fourth reason Medicaid expansion is like a timeshare is because the quality of Medicaid is not very high. (Indeed, this is where my analogy fails because I’m sure many timeshares are comparatively better!)

No doubt, there are excellent providers in Mississippi’s Medicaid program. Overall, however, Medicaid outcomes are far worse than outcomes for patients with private insurance. Medicaid expansion doesn’t even improve physical health outcomes. This is one of the troubling findings from the Oregon Health Insurance Experiment (OHIE), now hosted at the National Bureau of Economic Research. Another finding, as indicated above, is that hospitals – not patients – are the real beneficiaries of Medicaid expansion.

We don’t have space here to explain why Medicaid outcomes are so poor. Part of the reason is because many health care professionals refuse to participate in the program because of low reimbursement rates. (The “fix” for that will be socialized medicine.) Part of the reason is that Medicaid patients themselves don’t value Medicaid coverage all that much, as the OHIE study also found, and don’t seem all that invested in their own health care outcomes.

The fifth and final reason expanding Medicaid is a lot like buying into a timeshare is because the timeshare model works best if you have a presumption of scarcity. Today, the timeshare model does not work very well because we can use the power of technology – the Internet – to find better properties at a better price. We can also use technology to access properties on sites like Airbnb. If we could not do that and if there was a scarcity of properties, the timeshare model might make more economic sense.

I want to dwell on this point a bit more because this attitude of scarcity is deeply ingrained in Mississippi’s psyche. Good and valid reasons explain this, but it is important to recognize it nonetheless. 

Fortunately, the health care economy is not a finite pie. Both the potential and actual supply of health care in America is not as scarce as it might seem. In fact, there are multiple pies – not just one or two – and these pies can get bigger.

Let me give an example.

A few years ago, a South African carpenter named Richard van As lost four fingers during a woodworking accident. Unable to work, Richard needed a new hand, but couldn’t afford a prosthetic hand. Instead of giving up, he started searching for alternatives. His quest led him to Ivan Owen, a puppeteer in Washington State. Working together and crowd-sourcing the initial costs, they used a 3-D printing press to manufacture a new hand for Richard. Today, people, especially children, can obtain such prosthetic hands for a couple of hundred dollars, if not for free. Perhaps you’ve seen them: Transformer hands, Iron Man hands, Spider Man hands, all manner of customizations are possible.

These kids, you see, could not get a prosthetic hand through Medicaid or even through their private insurance plans. The hands were too expensive: a $40,000 investment for a hand that a child would soon outgrow.

The scarcity mindset only sees the $40,000 hand and presumes there are only two ways of paying for it: public insurance or private insurance. We must reject this scarcity mindset for health care and for Mississippi’s economy.

We are told we have to expand Medicaid for a variety of reasons. All of them are rooted in this scarcity mindset.

First, you will hear that we should expand Medicaid because the federal money is just too good. The federal match for the expansion population is 90 percent. This conclusion is a non sequitur for two reasons. It’s like the timeshare guy offering to sell you a $10 million condo at a 90 percent discount. Once you get past how good the deal seems, you have to determine whether you have $1 million dollars. Second, the argument presumes virtually no one in Mississippi pays or will ever pay federal income tax.

Insofar as we do pay federal taxes, doesn’t it matter whether we forgo this federal spending if the evidence shows Medicaid expansion does not meet our needs? It is not true that other states are going to get our share of the Medicaid money pot. Medicaid is a welfare entitlement, which means that every person who is statutorily entitled to get on Medicaid has a claim to such services. There is no cap on Medicaid spending and there is not a separate Medicaid funding pot.

Granted, it is tempting to conclude that we should just take the federal money. Congress has no budget and America is bankrupt anyway. We might as well get ours while we can get it. If you believe this, the logical conclusion is that our federal government is absolutely corrupt and the whole budgeting process is a complete scam. In turn, the best play for Mississippi is to get in on the scam. If this is what you believe about America, so be it. But this Machiavellian view is not the legacy I want to leave to my children.

The second way the scarcity mindset comes into play regarding Medicaid is when we are told that medicine is socialized anyway, and that Medicaid expansion will be a more efficient way to provide health care to the poor. The suggestion here is that if we fund Medicaid expansion, commercial insurance costs – for private payers – will decline. This suggestion is explicit in material put out by the Mississippi Hospital Association.

A 2019 study by the state of Colorado utterly debunks this claim. The premise is that if fewer patients are uninsured and Medicaid pays more, hospital prices – and insurance premiums – for privately insured patients will decline. Medicaid expansion, we are told, is thus a good deal for commercial payers because it will reduce their costs. Except this is not happening – at least not in Colorado and certainly not in Indiana.

Indeed, according to the executive director of the Colorado Department of Health Care Policy & Financing, the hospitals used the “Medicaid expansion windfall to build free-standing [emergency departments], acquire physician practices, and build new facilities where there was already sufficient capacity. … Hospitals had a fork in the road,” concluded the director, “to either use the money coming in to lower the cost shift to employers and consumers or use the money to fuel a health care arms race. With few exceptions, they chose the latter.”

As an aside, Colorado’s experience gives us every reason to believe that expanding Medicaid will not primarily benefit rural hospitals in Mississippi, but urban hospitals.

The point I am making here is this: Even framing health care for low-income patients as a competition between Medicaid and private insurance is wrong headed. We can provide health care to these patients using other payment models and tapping into other supplies.

There are not only two pies: government-funded insurance OR private insurance.

There are other supplies of health care we are only beginning to utilize: direct primary care and telemedicine are two of them. There are also other payment models out there, such as health care sharing ministries and Association Health Plans. In many cases, it is government regulations that are preventing the emergence of more affordable choices.

Another option is hospital charity care. Mississippi has 111 hospitals: 45 are government-controlled (state/local, plus 4 federal); 31 are nonprofit; and 31 are for-profit. Shouldn’t public and nonprofit hospitals, which account for a large majority of hospitals in Mississippi, be mission-oriented toward providing subsidized care? In order to retain their tax-exempt status, nonprofit hospitals must provide a “community benefit.” This benefit is largely undefined and not particularly enforced.

This goes to show, however, that there are a multitude of free markets for health care and health insurance rather than the monolithic, health care bureaucracy that sees only the inefficient and expensive systems of Medicaid/Medicare and employer-based insurance as the only options. Again, there are not only two pies. There are multiple pies. Mississippi would do well to stop fighting over the scraps from D.C.’s broken health care promises and look toward creating a better framework that can help our people rise.