Wisconsin Medicaid Expansion: Other observations on the WILL/CROWE report

by Donna Friedsam

Below are the less formal, initial comments, drafted by Donna Friedsam alone, about the CROWE study released Tuesday pertaining to the potential impact of Medicaid expansion in Wisconsin.

As well, here is a twitter thread worth reading by Tim Classen (UW econ. PhD)

I will note that my research team is currently conducting a rigorous empirical  study, with support of the Robert Wood Johnson Foundation, to assess the trade-offs in providing Medicaid versus ACA Marketplace coverage for near-poor adults (100-138% FPL).

First, I am pleased to see that the authors of this study made use of some of the existing literature and, in particular, that they cite four peer-reviewed journal publications from my own research team.

However, this study has several methodological and analytic flaws that substantially compromise the validity of its conclusions.  They include the following:

1,  The authors themselves note:  “We are not accounting for, in either a positive or negative way, any impact of expansion on health outcomes.”  This omission is significant, in that the study itself cites our UW research group’s prior findings that previous BadgerCare expansions showed ” evidence of better healthcare outcomes, as preventable hospitalizations fell by 48 percent.” (DeLeire, et al, 2013)

2.  Mathematical errors:

Page 5 of the report states that, for Wisconsin’s Medicaid expansion: “the primary effect is to move the 38% currently eligible for subsidized care onto the Medicaid rolls.”

I am not sure what the 38% refers to here: Are the authors referring to the people between 100% FPL and 138% FPL who would, under an expansion, become eligible for Medicaid?

That is not the same as moving 38% currently eligible for subsidized care onto Medicaid rolls.  About 176,000 Wisconsin residents in 2018 received ACA premium subsidies, including everyone under 400% FPL that qualifies.  No projections anywhere suggest that 67,000 of this group (which would be 38%) would become eligible for Medicaid.

Rather, my estimates suggest that, of the 76K  projected to gain coverage under Wisconsin’s Medicaid expansion, about 39,000 would come from the uninsured and about 37,000 would come from existing ACA Marketplace-subsidized coverage.

3. Emergency Room Visits:

The paper’s authors correctly cite studies that have observed increases in emergency department use following Medicaid expansions.  However, this observation is not as directly applicable to Wisconsin’s expansion discussion.

The other states in which expansion occurred were largely bringing into new coverage people below the federal poverty level who had previously been without any other coverage options.  In Wisconsin, all of the newly covered will come from 100-138% FPL.  As noted above, about half would come from the uninsured and the other half come from other (likely ACA-marketplace-subsidized coverage). Those moving from ACA subsidized coverage will already have experience with the health care system. Their spells of pent-up demand that might occur upon new enrollment following a prior period of uninsurance will have already been incurred.

It is therefore not likely that Wisconsin’s expansion will experience the same spike in utilization observed in other states.   This error in baseline assumption likely results in inflating the author’s estimates about the projected increase in health care expenditures.

As well, the paper states: “It is important to note that visits from uninsured patients declined according to this study. However, because emergency rooms are the most expensive delivery method of healthcare, the taxpayer bears the brunt of the cost of increased Medicaid ER visits.”

It is unclear why the authors here would not continue to apply their theory that providers shift the costs of uncompensated or under-compensated care to private payers.  If the authors had done so, as they do when discussing what they identify as low Medicaid payments, they would have had to identify and quantify the reductions in uncompensated care that occur by the decline in uninsured patient visits to ERs, and the corresponding reduction in cost-shifting to private payers.

4. Cost-Shifting: The authors assert, several times throughout the paper: “Private sector healthcare costs are likely to increase as healthcare providers pass on the costs from low Medicaid reimbursement rates to consumers.”

The authors cite a report by the American Hospital Association to support this assertion.  However, most economists reject this reasoning.  Scholars point out that, if the reason for higher private payments is lower public payments, you would expect hospital margins to be close to zero.  But in fact, most of Wisconsin’s hospitals and health systems operate with healthy margins. As well, such cost-shifting concerns have not declined in line with substantial reductions in uncompensated care in the past four years, nor after the state legislature allocated hospitals tens of millions of GPR support to help them manage their concerns about Medicaid underpayments and avoid such cost shifting.

This suggests exactly what basic economic theory supports: that providers charge the highest maximum price possible of all payers.  Providers’ market power, and their ability to leverage prices, determines what they charge.  If they have the market power to attain higher prices from private payers, they may use that to subsidize under- and uninsured patients and also to attain margin, compensate their professionals well and to build facilities and reserves.  If providers lack such market power to leverage higher prices from private payers, they will seek ways to reduce their operating costs. Or they will avoid serving Medicaid patients – an undesirable effect the Medicaid program experiences in certain sectors.  But the gap between Medicaid and private payments do not create higher prices for private payers.

5. Health care spending:

Health care spending is a function of both volume of health care delivery (amount of services delivered/utilized) and prices of health care services.  This study reports that Medicaid expansion states show higher overall health care spending that non-expansion states.  But the study fails to separate the effect of health care prices in assessing trends in comparing health care spending across states. (For example, Wisconsin’s health care prices are comparatively high relative to other states nationally, which accounts for its current relatively high levels of health care spending.)

In order to understand the effect Medicaid expansion on health care spending, the authors would have needed to separately report growth trends for years 2013-present for both utilization and for prices, in both expansion and non-expansion states and the differences in trends between the two groups of states.

(by the way: Other studies suggest that Medicaid expansion might in fact reduce prices in the private insurance market, by removing higher need/higher actuarial risk patients from that pool.)

6. Current Medicaid cut-off at 100% FPL creates an incentive to keep earnings below this level.  Opening up to 138% will re move this disincentive and encourages people with incomes close to 100% to work more without concern about losing their Medicaid coverage.