The myth of the Medicaid monster

Some things can be settled with a calculator or by scientific consensus, yet in politics these days facts are disputed as hotly as opinions.

Arguments over what should be obvious are a national phenomenon, but North Carolina is suffering from an especially acute case of confusion over what should be easily demonstrable. Is the state’s Medicaid system broken or is it relatively effective? Did changes in the state tax code deliver a tax break to most North Carolina taxpayers or are most paying more? Did the legislature increase funding for public schools by $1 billion or has it let funding erode?

For today, let’s consider the dueling images of Medicaid, the state and federal health insurance program that covers 1.8 million North Carolinians, mostly children, pregnant women, the elderly and the disabled. Expanding Medicaid under the Affordable Care Act would broaden eligibility to include nearly a half-million more people. But the legislature and Gov. Pat McCrory oppose expansion, despite federal subsidies that would cover at least 90 percent of the cost.

Holding back Medicaid

Refusing to expand Medicaid may look reflexively anti-Obama and hardhearted, but Republicans say it’s a matter of fiscal responsibility. They say that Medicaid’s annual costs are prone to unpredictable surges and that its overall rate of increase means it will soon crowd out the state’s ability to meet its other obligations.

But the Medicaid monster is a myth. A new analysis by the nonprofit Medicaid management organization Community Care of North Carolina found the health care program to be a steady expense. It’s expensive, yes, but it does a lot to improve the health of a vulnerable population and may well head off more expensive medical costs that would inflate premiums for everyone.

John Alexander, Community Care’s vice president for Medicaid financial performance and analysis, sat in a conference room last week and presented the reality behind the illusion. “We found that spending on Medicaid isn’t broken, it isn’t unpredictable, it isn’t out of control,” he said.

Indeed, he said, year-over-year spending on Medicaid is consistent, its administrative costs are relatively low and the cost per patient is going down, falling 9 percent in the last four years.

Alarm about runaway Medicaid expenses was triggered by shifts in funding sources, not rising costs, Alexander said. In 2009 and 2010, the federal stimulus program poured extra money into state Medicaid programs to keep them solvent. That federal infusion allowed North Carolina to reduce its Medicaid allocation.

When the stimulus program ended, state lawmakers had to again allocate the state’s full share. That looked like a surge in state spending as the state appropriation climbed from $2.3 billion in 2010 to $3.6 billion in 2015. But it really was the state moving from a payment subsidized by the stimulus back to a full state allocation.

To see the real cost of Medicaid, Alexander noted, don’t look at the gyrations in state allocations. Look at what the program actually has spent. Here is what you see in billions of dollars for fiscal years 2010 through 2014: $3.6, $3.5, $3.3, $3.5, $3.3. Medicaid’s annual cost to North Carolina is consistent, even trending downward despite a rising number of people enrolled.

The Medicaid “cost crisis” was caused by not fully funding the state’s share of the program once the stimulus ended. Lawmakers budgeted an unrealistically low amount and told the program to meet that mark through savings. But Medicaid must pay for the care of everyone who qualifies. It can’t arbitrarily cut its spending to meet a budget target. Its cost remained consistent, and it exceeded a budget that was set too low.

Too troubled to expand

This bit of budgetary malpractice was compounded by McCrory’s lurching for political cover in 2013. The newly elected governor didn’t want to appear opposed to Medicaid expansion out of anti-Obama zealotry or indifference to the uninsured. He wanted to base his position on fiscal prudence. At a January 2013 news conference, McCrory, Department of Health and Human Services Secretary Aldona Wos and State Auditor Beth Wood focused on an audit that found high administrative costs in Medicaid. McCrory and Wos said the program was too troubled to be expanded.

In October 2013, Rose Hoban of NC Health News published a story about what was happening behind the scenes. Hoban showed how N.C. Medicaid’s administrative costs are relatively low. She also showed how the new Medicaid chief hired by Wos had excised information from the DHHS’ audit response that would have countered the auditor’s criticism. That subterfuge further inflated the idea of a Medicaid program out of control, and the Medicaid monster grew. But it wasn’t real then and isn’t now.

This story was originally published May 9, 2015 at 4:00 PM with the headline "The myth of the Medicaid monster."