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Better Health Insurance doesn’t Equal Better Healthcare

Paul Howard | 01/09/2014 |

New data from the Oregon Medicaid expansion study—examining a 2008 lottery where 30,000 random winners, all low-income uninsured people, got the opportunity to apply for Medicaid—gives fodder for critics of Obamacare’s Medicaid expansion. The study found Medicaid enrollees used the Emergency Room much more frequently than the uninsured control group, increasing overall health care costs with no improvement in health outcomes. The study punctures the argument of Obamacare supporters that expanding coverage will lower health care costs by increasing access to primary and preventive care, and decrease unnecessary ER use. 

The Oregon study found that Medicaid enrollees used hospital emergency rooms about 40 percent more often than the control group of lottery “losers.” The authors point out that this was not necessarily an a priori conclusion: more appropriate use of primary care or preventive care (both of which are free or nearly free for enrollees) could theoretically reduce the use of ER, particularly for chronic ailments. 

What the authors found, however, is that enrollees not only increased their use of primary and preventive care, they also increased their use of the ER for conditions that could have been treated in a doctor’s office (two categories called “non-emergent care” and “primary care treatable”). Overall, the authors estimate that increasing Medicaid enrollment increased ER spending by about $120 per person covered. 

It should not be surprising that zero-dollar health insurance coverage increases health care spending across the board. The RAND Health Insurance Experiment (also a randomized trial) found that patients with free care utilized more health care resources than those who faced cost sharing requirements, and that adding cost sharing did not affect patient health (outside of a small cohort of the sickest and poorest patients).

But here is the real kicker: the Oregon authors also found no statistically significant improvement in objective health outcomes during the year-long study. Enrollees did report better mental health status, and less out-of-pocket spending on health care—but “making people feel better” is not a justification for a Medicaid expansion expected to cost states and the federal government close to a trillion dollars annually by 2020, according to the Center for Medicare and Medicaid Services. 

Defenders of Obamacare’s Medicaid expansion point out many reasons that poor individuals may prefer to use the ER: it may allow them care after normal business hours (requiring less time off from work), and may minimize follow up appointments with specialists referred by primary care providers to manage chronic conditions. (However, the study also found that both “on-hours” and “off-hours” ER visits increased for Medicaid enrollees compared to the control group.)

These are both plausible explanations for enrollees’ behavior—but they miss the key point. Clearly the timing and utilization of specific health care resources (ER vs. primary care) is sharply influenced by the incentives facing consumers. Given the choice between a zero dollar ER visit and a zero dollar primary care visit, Medicaid enrollees will take the ER visit when it is more convenient (or at least perceived to be)—just as anyone else would. 

For those steeped in the literature on Medicaid enrollees’ use of hospital emergency rooms, the results are not terribly surprising. But the findings should encourage more states to enact Medicaid reforms that design benefits and co-pays to discourage inappropriate ER use and adopt wellness initiatives that encourage enrollees to take more responsibility for routine care. Promising approaches include pairing modified Health Savings Accounts (HSAs) with catastrophic insurance policies, as in Indiana’s Healthy Indiana Plan (HIP). HIP passed with bipartisan support and was signed into law in 2007 by former Indiana governor Mitch Daniels. Launched in 2008, HIP became (and remains) the only expressly consumer-driven public program for a low-income population. 

The program allows HSA savings to roll over annually if enrollees complied with basic wellness and prevention measures (such as cholesterol testing and mammograms) proven to save lives—and included modest penalties for inappropriate ER use. Unsurprisingly, HIP enrollees used the ER room less than traditional Medicaid recipients, and used preventive services and generic drugs at higher rates than traditional Medicaid. Overall, HIP maintained budget neutrality for the state—and appears to have come in nearly $1 billion under the budget caps originally negotiated with the federal government (under its Medicaid waiver agreement). 

To the Obama administration’s credit, Indiana recently obtained a waiver to continue HIP in 2014. (Without that waiver, Obamacare would have killed HIP by moving recipients back into the state’s traditional Medicaid program.) Governor Pence declared the state will not consider embracing Obamacare’s Medicaid expansion unless they can expand HIP to cover new enrollees. 

The latest data from Oregon’s Medicaid expansion should encourage the Obama administration to accept Indiana’s request—and encourage more states to experiment with programs that give Medicaid enrollees more incentives and accountability to manage their own health care—strategies that are already common in employer-provided insurance. 

Finally, the Oregon study reinforces a growing body of literature that finds very little effect from health insurance on health status. It may very well be that policymakers need to think seriously about spending less on health insurance, per se, and more on the other “inputs” that can produce better health. The biggest one appears to be education: keeping people in school longer not only improves lifetime earnings, it also lowers mortality risk. Education reform initiatives might do more to improve the long-term health of low-income populations than expanding Medicaid. 

Spending more money on health insurance does not necessarily equate to better health. We may just have to admit that improving the lives of the poor requires thinking very differently about the underlying behaviors that drive better health, job retention, and better educational outcomes. It is an expensive lesson to learn, but thanks to the Oregon researchers, it might just be sinking in. 


Paul Howard is a senior fellow at the Manhattan Institute for Policy Research where he directs the Center for Medical Progress. You can follow him on Twitter here.

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