Does expanding Medicaid 'worsen health care options'? We take a second look

We recently checked a claim by Sen. Ted Cruz on expanding Medicaid, the health insurance program for the poor. "Our friends who are saying they want health care do not realize that expanding Medicaid will worsen health care options for the most vulnerable among us in Texas," Cruz said. We rated it False.

Cruz's office soon asked us to consider additional evidence, which we're examining here.

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A little background: Cruz opposes a major expansion of Medicaid that would be available to states under President Barack Obama’s health care law. Under the new law, states can get federal dollars to enroll more of their residents in Medicaid. Cruz argues that taking federal money would leave Texas on the hook for long-term fiscal commitments it can’t afford. Cruz also argues that a Medicaid expansion would actually leave the uninsured worse off.

Experts acknowledge that the expansion of Medicaid is not without risks. The program is not perfect, and various policy changes could make it more effective. Adding millions of beneficiaries through Obama’s health care law will impose additional strains on the program.

Still, the way Cruz framed his argument went beyond simple skepticism about the program’s effectiveness or costs. Rather, he said low-income people would actually have worse options if they were presented with the possibility of enrolling in Medicaid. This struck some observers as illogical on its face. After reviewing other evidence, including whether people on Medicaid have worse health outcomes than the uninsured, we rated the claim False.

Not long after we published our analysis, Cruz’s staff contacted us to offer a different justification for his claim -- that expanding Medicaid would move people off of private insurance and onto Medicaid, where they wouldn’t have the same freedom in choosing a doctor. His staff offered us several documents and opinion articles to back up this perspective. Health-policy wonks call this phenomenon of shifting from private insurance to Medicaid "crowding out."

"In Texas about two-thirds of doctors limit Medicaid patients or don't see any at all, so those patients will not have the same choice of doctors as those with private coverage or even with no coverage," said Cruz spokeswoman Catherine Frazier.

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Among the supporting documents provided by Cruz’s office, the boldest distillation of this view came in a column that ran in the conservative National Review by Grace-Marie Turner, president of the Galen Institute, and Avik S. Roy, a senior fellow at the Manhattan Institute.

"Many doctors refuse to take Medicaid — and when Medicaid patients can’t get predictable access to care, their cancers go undiagnosed and their heart conditions go unmanaged," Turner and Roy write. "Access to specialists is particularly challenging. When Medicaid patients finally do get care, their diseases are often more advanced and more difficult to treat. This is worse than having no insurance at all, because uninsured people pay out-of-pocket, which doctors accept, compared with Medicaid, which underpays doctors and requires lots of form-filling and arguing."

The lines we’ve italicized above strike us as highly suspect. If a person is poor enough to qualify for Medicaid -- which after the new law kicks in will mean someone who earns up to 138 percent of the federal poverty level -- it’s highly unlikely that they would have enough money to simply pay for their health care out of their own pocket on an a la carte basis.

But a more modest form of this argument seems worthy of further investigation. Crowding out is a real phenomenon -- something acknowledged even by experts we interviewed who aren’t especially sympathetic to Cruz’s view. The liberal Center on Budget and Policy Priorities, for instance, has cited studies of past expansions of Medicaid for children that found that "between 10 percent and 20 percent of new Medicaid enrollees previously had private coverage."

Still, just saying there will be crowding out does not mean that Cruz’s concerns are correctly placed. We think it matters whether a person is forced onto Medicaid or goes onto it voluntarily.

Why? If someone moves to Medicaid voluntarily, they may do it because Medicaid saves them money, or because it provides benefits for specific health conditions that may not have been covered under their prior plan. Either way, expanding Medicaid gives these people -- or the poor uninsured, who have no options beyond hoping for charity care -- an extra health care option.

By contrast, we think it’s reasonable to worry that someone who’s forced off a private plan due to the Medicaid expansion would indeed face "worsened" options. This would take the form of someone’s employer canceling coverage at their company.

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So, to analyze Cruz’s claim, we see two key questions:

1. Is there evidence from past Medicaid expansions that employers are apt to cancel their health coverage, leaving employees involuntarily forced onto Medicaid?

2. If these unlucky people exist, is there evidence that they ended up with fewer medical options after joining Medicaid than they had on their previous plan?

To answer these questions, we contacted experts and looked at a variety of research papers.

We found two studies that were directly relevant. A study by M. Susan Marquis of RAND found that "crowd-out stems primarily from the decisions of workers," not employers. And a study by Thomas Buchmueller, a professor at the University of Michigan School of Public Health, found "no evidence that employers stopped offering single or family coverage outright."

Most experts we interviewed agreed, expressing skepticism that the new law will lead to a large number of involuntary shifts from employer-sponsored insurance to Medicaid.

Steve Pizer, an associate professor of health policy and management at the Boston University School of Public Health, said he is aware of "no evidence that Medicaid expansions have moved people involuntarily off private insurance. ... Employer-sponsored insurance has been declining, but not as a result of Medicaid expansions. The causation probably runs the other way: Declining employer-sponsored insurance creates financial pressure on hospitals which push for Medicaid expansions."

A big reason experts say it’s unlikely that large numbers of employees will be forced onto Medicaid is simple math: Relatively few Americans are both poor enough to qualify for Medicaid and fortunate enough to work for a company that offers health insurance to its workers.

According to the Kaiser Family Foundation, just 13 percent of poor children, 15 percent of poor parents and 23 percent of poor adults without children had private coverage in 2009, and those percentages include plans purchased on the individual market. When only a small portion of your workforce is eligible to receive Medicaid, that particular program is not likely to be a driving force for decisions about your company’s health care plan, experts said.

"If very few of my low income workers are eligible" for Medicaid after the program is expanded, "then why would I close the plan?" said Eric Seiber, an assistant professor of health services management and policy at Ohio State University and co-author of a paper on crowding out in Ohio.

Katherine Baicker, a professor of health economics at the Harvard School of Public Health, agreed, saying her interpretation "of the (mixed) evidence on crowd-out is that whatever crowd-out there is is mostly through voluntary moves -- leaving the movers better off -- rather than through involuntary loss of employer plans."

Another factor that should act to restrain companies from dropping coverage is the inclusion of penalties for firms that ignore an employer mandate for health care. This penalty regime is "one thing that is really different" about the new law compared to previous Medicaid expansions, said Lisa Dubay, a senior fellow at the Urban Institute.

The recent experience of four states suggests that employer insurance doesn’t inevitably wither on the vine when Medicaid is expanded. In three states that expanded Medicaid eligibility in recent years -- Delaware, Arizona and Oregon -- the number of people on employer-sponsored insurance rose by between 3 percent and 13 percent between 2002 and 2011, the period when the expansions took place. In a fourth state, Maine, the number on employer-sponsored insurance declined by 4 percent.

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Meanwhile, we raised a second question -- whether someone forced off private coverage involuntarily would see a shrinking of their medical options. There is reason to believe this could happen, but even this is not a slam-dunk.

There does seem to be some support for anecdotal reports that low reimbursement rates and heavy paperwork keeps physicians from taking new Medicaid patients. In Texas, the state Cruz specifically cited, PolitiFact Texas recently reported that 42 percent of physicians surveyed in 2012 said they refuse all new Medicaid patients; 32 percent said they accept all new Medicaid patients, with 26 percent saying they offer limited numbers of new Medicaid patients.

Even so, Medicaid coverage is not the wasteland some of its critics imagine, said Kip Piper, a specialist in Medicaid policy and a senior consultant with the firm Sellers Dorsey.

"There is a fair amount of evidence that Medicaid health plans sometimes outperform commercial plans, especially for certain populations, on things like preventive screenings," Piper said. Medicaid can offer a broader package of benefits than is available in private plans, he said, and under the new law, Medicaid beneficiaries will get the same package of "essential health benefits" that purchasers of individual insurance on the exchanges do. "Medicaid health plans must meet very specific ‘network adequacy’ standards and quality and access standards," Piper said.

A final caution: The dynamics of crowding out are fiendishly difficult to predict in advance. The new law is a "simultaneous, non-linear equation from hell," Piper said. "It's tough to predict what employers and individuals will do, when, why, and to what degree."

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So where does this leave Cruz’s claim that "expanding Medicaid will worsen health care options for the most vulnerable"? After we explained what our research uncovered, Cruz’s office said he stands by his comments, saying that "study after study indicates that people will be crowded out of private insurance and into Medicaid," where they will have a harder time finding a doctor who will take them.

We think it’s possible that the new law’s Medicaid expansion could drive some companies to drop coverage, involuntarily forcing some employees off a private plan and onto a Medicaid program that offers them more limited medical options. However, both research about prior Medicaid expansions and the design of the new law suggest that such cases will be the exception -- possibly a very small exception -- rather than the rule. Meanwhile, it’s not clear that Medicaid inevitably provides worse medical options than private care; whether it does is heavily dependent on the state and other factors.

Because Cruz’s statement is far more sweeping than the evidence supporting it, we don’t see a reason to change our initial rating. Cruz’s statement that "expanding Medicaid will worsen health care options" remains False.