The battle over North Carolina’s 2019-20 and 2020-21 budgets is currently raging a month into overtime. The crux of that fight is, of course, Medicaid expansion. Along the way it has been portrayed by opponents as a liberal hobby horse, a pet project, the most divisive policy item, even a radical hostage demand. When one looks at the rest of the country, however, that is not the picture that emerges.

The Medicaid expansion question doesn’t split down the middle of the country, red vs. blue. It does, however, split Red State America right down the middle. Sixteen of 30 states that went red in the 2016 presidential election have passed expansion, including 13 of 24 states that went redder than NC and 11 of 22 states with current GOP trifectas in their state government. Idaho went for Trump by 32 points in 2016 and passed Medicaid expansion by popular referendum with 60% of the vote in 2018. And while many of those states passed expansion early or right away, there’s not much evidence of buyer’s remorse: forty GOP trifecta state legislative terms have passed exactly zero repeals of Medicaid expansion.

There are no obvious ideological fissures in the conservative community that explain which states have passed expansion and which haven’t. They are largely, but not exclusively, southern; largely, but not exclusively, poorer than NC; largely, but not exclusively, less urban than NC. Even the Dakotas, which went for Trump by 30 and 36 points, are split. It would be a mistake, though, to chalk the red expansion states up to arbitrariness, inconstancy, or outright political apostasy. Real effects of GOP-approved state and federal policy present problems that Medicaid expansion is effective in addressing.

For its part, North Carolina is a poster-worthy example for most of those problems.

Most of NC State Tax Cuts Fell in Cities/Suburbs While Most of Medicaid Cuts Fell in the Rest of the State

Ten counties in North Carolina — Mecklenburg, Wake, Guilford, Forsyth, Durham, Buncombe, Union, New Hanover, Cabarrus, and Orange, which contain the largest cities and some of their suburbs, are home to about 43% of NC’s population. Those counties have collected about 50% of state personal income, including 60% of the growth, since 2013. According to NC Department of Revenue data, about 60% of NC’s state income tax cuts from 2013 to 2016 went to those counties. About 15.5% of the tax cuts were received by nonresidents of NC, so only about 24.5% of the cuts were felt in NC outside of those counties.

Those tax cuts have been offset by reductions in state programs, including Medicaid. Nominal spending has increased, but inflation-adjusted expenditures per enrollee are down by about $1,200 (15%) from FY2009 to FY2018 while the enrollment rate is up from 19% to 20.5% (even after filtering out Family Planning enrollees). Multiplying by current enrollment, the total shift is about $2.5 billion.

The percentage of enrollment in the more expensive aged, blind, disabled, and breast/cervical cancer groups has fallen only slightly, from 23.9% to 23.2%, so the mix of enrollees hasn’t changed enough to explain the drop. Most of it is policy; provider fees as a percentage of Medicare’s rates are down from 95% in 2008 to 78% in 2016. Republicans are aware of this; one argument sometimes made against Medicaid expansion is that Medicaid provider reimbursements are below cost and therefore expanding Medicaid will exacerbate provider shortages in the rural parts of the state where Medicaid is supposed to be most beneficial. This concern is valid, if weird to hear from the Republicans who mostly engineered the current state of affairs, but it is overblown. There is a reason hospitals, and particularly rural hospitals, aggressively campaign for expansion.

About 2/3 of that $2.5 billion is foregone federal funding, $200 million in avoided provider assessments, and $600 million in avoided state spending. Roughly 60% would have fallen in NC outside of those ten counties mentioned earlier, in contrast with the 24.5% of the tax cuts. The curious and potentially politically problematic aspect of that is this:

Comparing the shaded counties to the election pickups map shows a lot of red space where the tax cut may not be felt as keenly as the missing Medicaid spending. It is little wonder there have been five rural hospital closures since 2013 (plus Washington County Hospital, which closed for two months in early 2019 for bankruptcy and has since reopened). Expansion brings back the federal funding that’s dried up over the past decade due to policy choices (and then some), without capitulating on state income taxes, and applies the funds in places where the state tax cuts were generally less noticeable.

The State Health Plan vs. Uncompensated Care

One problem currently facing providers is that uncompensated care is on its way back up, after falling for a bit, but much of the federal funds that help compensate are scheduled to go away for a few years starting in 2020. The Disproportionate Share Hospital (DSH) program sets aside a pool of funds — $340 million for NC in 2019 — to reimburse hospitals for a portion of otherwise uncompensated care for uninsured patients. (Writeoffs of bad debt owed by insured patients is also a form of uncompensated care, but not considered for reimbursement by Medicaid.) The ACA, in expectation of nationwide Medicaid expansion, provided for cutting federal DSH allotments by nearly 2/3 over two years. Those cuts have been postponed multiple times from 2014 to 2020, but they are set to come due now. That would lower the federal cap on such payments in NC by about $113 million for FY2020, and then roughly double that for FY2021.

It is in this environment in which the State Health Plan has come out with a new pricing plan asking providers to take a $360 million per year haircut for the privilege of serving state employees. Providers, looking at a combined hit in 2021 close to $600 million, have stayed away in droves. The plan has already been revised twice, conceding $52M and then $116M largely to court rural providers. It is now down to $200M in savings as it closes in on its second “deadline” with little provider support.

The focus on rural providers is important because North Carolina (a local school system, UNC, or government department) is the single largest employer in 68 counties, and a healthcare industry entity is the top employer in eleven more. In many counties, those two categories hold two or three of the top ten employers. That is not solely a small county phenomenon, but it is obviously true that the larger the government/healthcare share of the local economy, the more crucial the SHP is to that area. This is in many ways a more dangerous game of chicken than the budget fight itself.

On top of everything else, effective repeal of the federal individual mandate will likely lead to higher uninsured rates and thus more uncompensated care, just as aid for it dries up dramatically. Despite shortfalls, Medicaid still adds value when the alternative is charity care or never-paid bills: a 2017 NCHA report shows more than $900 million of each statewide. Medicaid expansion was projected by the governor’s source to reduce uncompensated care of all types by about $800 million. One is inclined to wonder if hospital executives would be more accommodating with even a fraction of that cash in their coffers.

ACA Opposition vs. Exchange Premiums vs. Medicaid above the Federal Poverty Level

As Medicaid per enrollee costs drop, ACA premium subsidies are headed in very much the opposite direction. Attempts to gut the ACA, mostly spearheaded by the GOP and conservative special interests, have had a general effect of increasing premiums on the exchanges. That is quite effective in making the ACA less popular among folks who don’t qualify for a subsidy. However, it also makes ACA premium subsidies more expensive as well. Combining this trend with falling real per-recipient Medicaid costs creates a bit of a conundrum that even the CBO has noticed: at some point it’s literally cheaper to have the 100-138% FPL population on Medicaid.

North Carolina is very much at this crossroads. The premium subsidy for 2019 for a single 26 year-old non-smoker at 100-138% FPL in the Raleigh area ran from about $3,900-$4,200, and they get larger as people age: the average subsidy in North Carolina was $8,412 in 2018 (6th highest in the nation), totalling $3.6 billion for NC’s 426,000 federally subsidized marketplace enrollees.

Values from the KFF subsidy calculator for an outer Raleigh zip code for 2019.

The governor’s budget takes a fairly pessimistic view, pegging the 2021 per-enrollee cost of expansion at around $7,200, which is what you’d get by adjusting the 2018 $6,700 per non-family-planning enrollee cost for three years of ~2.2% inflation. Estimates of the demographics of the expansion population suggest an average premium subsidy of $6,500-$7,000 for 2018 among expansion qualifiers, which should get similarly adjusted for inflation for comparison to 2021 estimates. On the other hand, expansion opponents are fond of repeating that the expansion population is largely healthy, childless, working-age adults — and that group cost an average of $4,200 on Medicaid in NC. The average expansion enrollee is generally slightly more expensive than non-expansion adults, but that difference is historically on the order of 10-20%, not 50-60%.

This effect does not get enough attention. It doesn’t just call into question efforts to restrict expansion to the below-poverty set, it points to a much lower than typically acknowledged net federal cost of expanding Medicaid in North Carolina. It also cuts into the net new federal spending in NC, which would moderate some of the estimates of generated economic activity…but on the other hand hundreds of thousands of people would still get health insurance.

Another consideration is that even though subsidized exchange plans come with a reduced out-of-pocket maximum, $2,600 is still an amount that people making between $12,000 and $17,000 a year are unlikely to be able to afford. Some have made the argument that shifting people from private insurance to Medicaid will cause premiums and costs to rise for everyone else. With the government footing (at least) the same bill either way, though, it seems like an uphill climb for even the most hardened anti-statist to claim that there’s some kind of social or moral good in also extracting cash out of the pockets of the mostly-working poor to subsidize healthcare for the wealthier rest of the population.

Just Expand Medicaid Already

Medicaid expansion is the law of the land in the home states of Senators Mitch McConnell, Chuck Grassley, Tom Cotton, Mike Lee, and Ben Sasse, Representatives Kevin McCarthy, Steve Scalise, and Jim Jordan, and Vice President Mike Pence, among others. The median red state has passed Medicaid expansion and spends substantially more on public education than North Carolina. All this makes a fairly credible argument that the collective political center of the red states at this point is to the left side of a fight over expansion, which makes it all the more frustrating that it is the subject of a months-long budget stalemate in an R+4 purple state.

It isn’t hard to guess why NC often seems to be run as though it were R+28 Alabama, of course. It is probably worth pondering, though, what conservative principle is being upheld in NC that isn’t understood in other red expansion states. It could just be that the argument against expansion is ultimately not very good.

Perhaps it’s hard to argue that Medicaid expansion will run up against restricted ability of providers to supply enough care when providers are by their own estimates currently giving away nearly two billion dollars of care, and when allegedly high-and-low searches for ways to bring providers to rural areas have ignored the one option on the table that offers hundreds of thousands of newly-paying customers. Perhaps it’s hard to argue in places where federal funding has been drying up that the federal funding won’t do any good, or that the federal funds from expansion will not fuel job creation when you’ve been using similar dynamic models for years to say that funds returned by state and federal tax cuts are absolutely guaranteed to do just that. Perhaps it’s hard to argue that it’s some kind of affront to offer Medicaid to people near poverty who have private insurance when it turns out the federal government is already buying that insurance and it might actually be more expensive than Medicaid.

Maybe, finally, it’s hard to tell people that, because a unified GOP federal government spent two years promising but failing to find a better way to do this, taxpayers have to subsidize healthcare for the mostly-working poor in thirty-six other states (plus DC)…but they absolutely must not provide the same consideration to their own, because 1.4% of the federal budget deficit impact of the federal tax cut that was enthusiastically supported by essentially every Republican in elected office is just a bridge too far.

Maybe it’s time to expand Medicaid in North Carolina.

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