By Paul J. Gessing | Watchdog Opinion
Recently, I had the chance to testify before an interim committee of the New Mexico Legislature on the economic impact of Medicaid. The program for the poor was expanded under the federal health care law commonly known as “ObamaCare.” New Mexico was one of 24 states to expand the program in January 2014, but 20 states chose not to expand the program.
Initially, the expanded portion of the Medicaid program is being financed 100 percent by the federal government. Starting in 2017, that will go down to 95 percent and by 2020 federal support will drop to 90 percent. As 2017 approaches, New Mexico legislators have been quoted as saying that the increased cost of Medicaid is a “runaway train” and “you can’t put the brakes on health care costs.”
New Mexico’s budgetary outlook is indeed bleak as New Mexico’s total Medicaid expenditures are projected to be $5.5 billion with state taxpayers kicking in nearly $1 billion of that total. It had been the fastest growing item in the budget and with the State paying an increased share of the program’s expansion costs, that growth rate will rise rapidly in the years ahead. This at a time when New Mexico’s budget is expected to be stagnant as oil and gas prices remain depressed.
But what about the “stimulus” effects of having the federal government pay 100 percent of the cost of Medicaid expansion? The Rio Grande Foundation examined job growth in the expansion and non-expansion states and found that the 20 “non-expansion” states actually saw slightly faster overall job growth than the expansion states.
This defies the logic of some in this state who never miss an opportunity to hitch New Mexico’s economy to “free” money from Washington. How could “free” money not stimulate the economy? There are many explanations, but one is that welfare programs like Medicaid provide yet another reason for workers to drop out of the work force.
Another explanation is that much of the Medicaid expansion money doesn’t actually do anything to improve health care. It may result in additional hiring in the health care industry, but these are “paper-pushers” and relatively unproductive bureaucrats. Their productive labor is consumed by a wasteful bureaucracy rather than being put to work in the private sector economy.
Again, these are just two potential reasons why Medicaid expansion may not have “stimulated” New Mexico’s economy or the economy of other states that expanded Medicaid with temporarily “free” money.
To be clear, while Medicaid supporters take it as a given that the program also improves the economy by improving community health and overall health care outcomes, in the real world, Medicaid does nothing to improve health care outcomes.
The best real-world study of the health impact of Medicaid expansion is the Oregon Health Insurance Experiment. In 2008, Oregon expanded Medicaid for tens-of-thousands of for low-income, uninsured adults by lottery. The state could only afford to expand the program for approximately 30 percent of the eligible population.
This was a rare opportunity in social science to have a genuine control group. According to the researchers, “In the first one to two years, Medicaid increased health care utilization, reduced financial strain, and reduced depression, but produced no statistically significant effects on physical health or labor market outcomes.”
In other words, expanding Medicaid leads to a more positive mental state, but doesn’t improve actual health. Medicaid expansion is an incredibly-expensive way to improve the emotional well-being of New Mexico’s poor.
Unfortunately, the options available to state policymakers are limited at this time. Medicaid was a “broken” system even before President Obama made its expansion the centerpiece of his health care law.
Rather than a “one-size-fits-all” program from Washington that is paid for by taking on more debt from China, the individual states should be developing innovative programs geared towards helping the poor. And, rather than the lure of “free” money, states should bear the costs of those programs themselves and have the flexibility to mold them to best serve their respective needs.