My name is Edmund Haislmaier.  I am Senior Research Fellow at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation.

Thank you Madam Chairman and Members of the Committee for inviting me to testify today on the implications for Ohio of the Medicaid expansion included in the federal Patient Protection and Affordable Care Act (PPACA) of 2010.

State lawmakers debating whether or not to adopt the Medicaid expansion should note that the expansion population differs significantly from the other populations already covered by Medicaid.

Since it’s inception the focus of Medicaid has been on providing health care to vulnerable low-income individuals—namely, children and disabled and elderly adults.  In many instances, the parents of children on Medicaid also receive coverage.

States that now adopt the expansion in PPACA will be extending Medicaid to a different population, consisting of able-bodied adults, the vast majority of whom do not have dependent children.

Table 1 reproduces Ohio data (as well as national data for comparison) from an Urban Institute analysis of the composition of the Medicaid expansion population. The data yield several important observations.

First, because Ohio's current Medicaid program covers parents up to 90% of the federal poverty level (or 96%, if working), just over 10% of the expansion population will be parents.  The other 90% of the expansion population will be adults without dependent children.

Second, the expansion population will be relatively young, with half between the ages of 19 and 34.

Third, the expansion population will be more male than female.  In part, that is due to the fact that Ohio’s Medicaid program already covers pregnant women up to 200% of the federal poverty level.

The Urban Institute estimates that adopting the expansion would increase Ohio Medicaid enrollment by a total of 578,000 individuals.  Of those, an estimated 445,000 are below 100% of the federal poverty level.  This is significant because the other 133,000 individuals, or 23% of the expansion population—who are between 100% and 138% FPL—will be able to instead obtain federally subsidized exchange coverage if Ohio does not expand Medicaid. Table 2 gives the same enrollment composition data for the subgroup with incomes below 100% FPL. In that subset only 5.1% are parents, while 94.9% are adults without dependent children.

Because this population consists overwhelmingly of adults without dependent children and is both younger and more male, Medicaid coverage designed for more vulnerable populations is not the most appropriate solution for these individuals.

Among this population, low-income is largely a reflection of certain factors, and those factors also tend to correlate with age.  In general, low-incomes among younger adults (those in their twenties) tend to result from combinations of poor education, lack of skills and limited workforce participation.  They are less likely to have serious or chronic medical conditions. In contrast, those older than age 30 with low incomes are more likely to also have chronic health conditions or behavior health issues, such as substance abuse.

Consequently, any health care assistance provided to this population should incorporate strong incentives for both work and healthy behavior, neither of which are features of the Medicaid program.  A health care assistance program for this population should include the following specific design features:

1. Any coverage should be subsidized on an income-related sliding scale, so as to avoid creating economic disincentives for work.
2. Assistance should be conditioned on a strong work requirement.  Recipients should be required to be working, actively seeking work, or engaged in job preparation activities, on a full-time basis. A recipient could satisfy this requirement by engaging in more than one of those activities, as appropriate to the individual’s circumstances, provided that the total effort was normally 40 hours per week.
3. The coverage should be structured to emphasize the provision of primary care services.
4. Like private insurance, the coverage should include strong disincentives (such as significant copays or deductibles) for inappropriate use of hospital emergency department services.
5. For those with chronic conditions such as diabetes, or behavioral health issues such as substance abuse, the program should offer disease management and behavior modification programs, accompanied by compliance monitoring and tangible rewards for successful participation.

If Ohio covers this population through a Medicaid expansion, then federal Medicaid rules will prevent the state from implementing some of these features, such as work requirements, and will also limit the state’s ability to implement others, such as more appropriate copay structures or rewards for behavior modification.  Furthermore, any variances for this population from the standard coverage provided to existing Medicaid populations will require federal approval.

Consideration needs to also be given to how Ohio adopting the Medicaid expansion will interact with other provisions of the PPACA.

For example, it is commonly assumed that because the PPACA requires employers to extend dependent coverage to children of their workers up to age 26, that most young adults will be covered on a parent’s policy.  However, if a young adult does not qualify as a dependent on someone else’s tax return he or she is treated as a separate household for Medicaid or exchange eligibility purposes.  Furthermore, there is no requirement that a young adult enroll in the health plan of a parent’s employer, if that option is available.  When the PPACA requirement for dependent coverage up to age 26 went into effect many young adults shifted from coverage under their own employer’s plan to coverage under a parent’s employer plan.  It can similarly be expected that when the new exchange subsidies and Medicaid expansion take effect, many young adults will shift from employer coverage to Medicaid or exchange coverage if they qualify for that coverage based on their own income.

It has also been widely noted that the design of the employer mandate in the PPACA will encourage employers to favor hiring more part-time workers and fewer full-time workers.  That is most likely to occur with respect to lower-wage and younger workers.  Extending Medicaid coverage with no work requirements to those individuals will make that option more attractive for employers.  Not only is that likely to result in higher than projected Medicaid enrollment over time, it will also exacerbate growing rates of youth unemployment and underemployment.  Relative to their European counterparts, young adults in America today are less likely to have health insurance but more likely to have jobs.  Expanding Medicaid unconditionally to this population is a good way to increase youth unemployment and underemployment to European levels.

Similarly, colleges and universities typically provide health plans to students.  However, because several of the PPACA’s new insurance rules will make that coverage much more expensive, many higher education institutions are considering dropping their student plans. That is much more likely to happen if a state expands Medicaid, thus enabling students, particularly graduate students who do not have access to coverage under a parent’s policy, to obtain Medicaid coverage.

Rather than adopting the PPACA’s broad Medicaid expansion, Ohio should instead extend Medicaid coverage only to the remaining parents and disabled adults below 100% of the FPL who are not already covered by the program.  For non-disabled adults without dependent children who are below 100% of the FPL, Ohio should then design a state-only funded health care assistance program that is more suitable for that population.  Such a program should be constructed on the design principles outlined above.

As noted, a strong work requirement should be a key feature of such a program.  Indeed, increasing employment and hours worked among this target population not only will benefit those individuals, but will also reduce the need for the program, and thus limit the cost to the state.  That is because once a worker earns more than the federal poverty threshold he or she will become eligible for the PPACA’s federally subsidized exchange coverage.  The current federal poverty threshold is $11,170 and the current federal minimum wage is $7.25 an hour.  A full-time (40 hours a week, 50 weeks per year) minimum wage worker earns $14,500 in annual income, or 130% of the poverty threshold.  Indeed, at Ohio’s current, higher, minimum wage of $7.85 per hour, all that is needed to exceed the federal poverty threshold (and thus qualify for federally subsidized exchange coverage) is 30 hours work per week for 50 weeks per year, or 40 hours work per week for 36 weeks per year.

While a fully insured program would be desirable, the PPACA’s new regulations imposed on private insurance will likely make that option too inflexible and expensive. The existing Cover Tennessee and Cover Florida programs will encounter those problems next year.  Consequently, an Ohio program should, at least initially, directly reimburse participating enrollees and/or providers.  However, the state could also contract on an “administrative services only” (ASO) basis with one or more insurers to run the program.  Existing managed care organizations would be obvious candidates.  If a suitable work-around to the PPACA’s insurance market rules can be devised, it may be possible to later shift the program onto a fully insured basis.

The state should look to fund the program by redirecting other, existing state spending.  In particular, the presence of federally subsidized exchange coverage will enable the state to discontinue Medicaid coverage for optional populations with incomes above either 100% of the FPL or otherwise federally mandated minimum levels, saving the state its share of the current costs.

In particular, Ohio can reduce Medicaid eligibility for working disabled adults from the current level of 250% FPL to 100% FPL, and pregnant women from the current level of 200% FPL to 138% FPL.  Once the PPACA’s “maintenance of effort” requirement on coverage of children in Medicaid and CHIP expires, the state will also be able to reduce eligibility levels for children to the federally mandated minimum of 138% FPL.  It is important to note that all of the individuals who would lose Medicaid coverage as a result of these changes will be able to obtain replacement federally subsidized exchange policies that provide comprehensive coverage with low enrollee premiums and very low cost sharing.

Given that a subset of the target population for the new program (non-disabled adults without dependent children below 100% FPL) will have chronic health conditions or behavioral health issues, the state should also consider repurposing to the new program some portion of existing spending on substance abuse treatment and state supplemental payments to hospitals and clinics for uncompensated care. For example, Ohio currently receives $115 million a year in grants from the federal Department of Health and Human Services’ Substance Abuse & Mental Health Services Administration (SAMHSA), $66 million of which is Substance Abuse Prevention and Treatment Block Grant funding.

In conclusion, it is an undisputed fact that the United States spends more on health care—on a per-capita basis and as a share of gross domestic product—than any other nation.  It is also a fact that the results of all that spending are sub-optimal. That is particularly evidenced by inadequate access to medical care among some sub-populations—particularly young adults. 

Congress failed to adequately address this situation when it enacted the PPACA.  What Congress should have done is to redesign health care financing incentives to generate a better-value, lower-cost system and then direct the resulting savings into expanding access.  Instead, in PPACA Congress shoved more people into a failing system and burdened the country with even higher public and private health care spending.

As Ohio and other states consider their own health reform measures, they should not simply go along with a set of bad federal policies, but should instead pursue the more appropriate, effective, and less costly reforms that Congress failed to include in the PPACA.

Madam Chairman, this concludes my prepared testimony. Thank you for this opportunity and I will be happy to answer any questions you or the other members may have.

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