The fiscal effects of a Wisconsin Medicaid expansion: Reasons to question the WILL/CROWE report’s conclusions

by Laura Dague, PhD, Brendan Saloner, PhD, Marguerite Burns, PhD, Donna Friedsam, MPH

A new report released by the UW Center for Research on the Wisconsin Economy (CROWE) and the Wisconsin Institute for Law & Liberty (WILL) concludes that a Wisconsin Medicaid expansion will result in a net cost to the state of $600 million.

The background section of the report cites some existing research, including several peer-reviewed journal publications from our own @UWHealthPolicy research team, within a robust literature exploring the effects of Medicaid expansion. Our team comprises a collaboration of faculty economists and health policy researchers at UW-Madison, Texas A&M University and Johns Hopkins University with extensive experience conducting research and evaluation of Medicaid policy in Wisconsin and nationwide.

After careful review of the WILL/CROWE report, we conclude that the contents do not justify the authors’ conclusion.

Two key factors drive the report’s conclusion: (1) the application of average effects of Medicaid expansions to the unique Wisconsin context; and (2) the authors’ estimate of the effects of Medicaid expansion itself.  Each of these components of the report’s argument is problematic.

(1)  Applying the report’s estimated effect of the WI Medicaid expansion on health care use and spending is problematic because it is based on Medicaid expansions that look very different from the proposed policy change in Wisconsin.  Specifically, the projections are derived from Medicaid expansions that typically provided health insurance to uninsured adults below 100% of the federal poverty level.  By contrast, the proposed Wisconsin Medicaid expansion uniquely targets adults with incomes between 100-138% FPL — an estimated 76,000 adults that currently qualify for heavily subsidized private health insurance through the ACA marketplace – some of whom are currently enrolled in coverage and some of whom remain uninsured.

Any changes in health care use and spending among this population will depend in large part on how many exit Marketplace plans to enroll in Medicaid, and the degree to which the incentives to use health care differ under Medicaid relative to fully subsidized Marketplace coverage.  No existing empirical research examines how shifting eligibility from one type of heavily subsidized coverage to another, as Wisconsin contemplates, affects insurance enrollment, health care use and spending.  This is an evidence gap that our team is currently addressing with a research grant from the Robert Wood Johnson Foundation.

(2)  The theoretical and empirical literature do not support the direction or magnitude of the estimated effect on private health care spending. First, the posited mechanism behind an increase in private spending is unclear. A large body of work in economics, reviewed here and here, rejects the notion that lower government payments for health care cause higher private sector payments. Health care providers can only successfully shift additional costs to the private sector if they are not already making full use of their market leverage to attain the highest payment rates from private insurers that the market will allow. Most hospitals and health systems in Wisconsin operate with healthy margins, suggesting that they effectively maximize their bargaining power. The report does not offer evidence to suggest otherwise.

Second, recent empirical research, published here and here, has also shown that Medicaid expansion actually decreases private sector insurance premiums. This finding is likely because Medicaid acts as a sort of high-risk pool that removes relatively more expensive individuals from the private insurance pool. Current Marketplace participants with incomes 100-138% FPL, who could be income-eligible for the proposed Wisconsin Medicaid expansion, may be sicker than the average Marketplace enrollee. In that case, a Medicaid expansion would improve the actuarial risk in the private insurance pool and thereby reduce premiums for the private market.

Finally, the statistical methods used to obtain the cost numbers in the report are inconsistent with prior work in this area and are unlikely to result in a robust causal estimate of the effect of Medicaid expansion.

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Private health care costs are indeed high and have been rising. There are certainly ways to encourage more robust competition in the health care sector and reduce the expense of private insurance. However, these issues will continue to be concerns with or without a Medicaid expansion. For now, the WILL/CROWE report neither helps advance understanding of the consequences of Medicaid expansion in Wisconsin on state expenditures nor its effect on wider health care expenditures.

 

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