How Expanding Medicaid Can Lower Insurance Premiums for All

The Obama administration for years has been pleading with states to expand their Medicaid programs and offer health coverage to low-income people. Now it has a further argument in its favor: Expansion of Medicaid could lower insurance prices for everyone else.

A new study published by in-house researchers at the Department of Health and Human Services compared places that have expanded their Medicaid programs as part of Obamacare with neighboring places that have not. They found that, in 2015, insurance in the marketplace for middle-income people cost less in the places that had expanded Medicaid.

By comparing counties across state borders, and adjusting for several differences between them, the researchers calculated that expanding Medicaid meant marketplace premiums that were 7 percent lower.

States that choose to expand Medicaid can offer government coverage for everyone earning below 133 percent of the federal poverty level, about $16,000 a year for a single person. People earning more can buy insurance in the new Obamacare marketplaces.

But in the states that don’t expand, the rules are a little different. People with incomes below 100 percent of the poverty level generally have no option for subsidized coverage. But people earning between 100 percent of the poverty level (just under $12,000 a year) and 133 percent can buy subsidized marketplace coverage. The H.H.S. report argues that it is these people who help explain the premium difference.

A substantial body of research has shown that lower-income Americans tend to have poorer health than those who earn more. (Cause and effect isn’t clear: People may be unable to earn a higher income because of health problems.) And that difference may explain why Medicaid expansion may have lowered insurance premiums. Because the states that didn’t expand had more sick people in their middle-class insurance pool, prices went up for everyone, the paper argues.

“The study is well done, including looking at a variety of analytic approaches for getting at the question,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation, a health research group, in an email. “It rings true with conventional wisdom.”

There are, of course, plenty of other differences between the states under consideration than just whether they expanded Medicaid. The states differ in demographics, geography, the choice of health care systems, and other state policies affecting health insurance. The report tried to adjust for those differences by focusing on adjacent counties, and by using statistical techniques to balance out some other factors. (A straight state-to-state comparison found a bigger gap between expansion and nonexpansion states — 8 percent.)

The report studied only states that use the federal marketplace system. That makes the states studied more equivalent, but also excludes big states, including New York and California.

The report was released amid a host of bad news about the new health care insurance marketplaces. Several insurers have decided to pull out of these markets, leaving many places with what appear to be health insurance monopolies for next year. And even in markets with more customer choice, prices are expected to rise substantially. The data in the report are from a time when insurance markets were less troubled. Whether the pattern will hold is unclear.

In a statement, the secretary of Health and Human Services, Sylvia Mathews Burwell, described the Medicaid expansion as a win-win for states, arguing that states can expand coverage to more people while lowering the insurance premiums for those already covered:

“Today’s report identifies yet another group that would gain if all states chose to expand Medicaid: Marketplace consumers who would see lower premiums. These gains are on top of the direct benefits of expansion for millions of Americans who would gain coverage.”

There are, of course, other considerations for states mulling a Medicaid expansion. States that have not expanded in many cases have a large population with no health insurance options, too poor to qualify for the marketplaces, but earning too much to obtain Medicaid in the legacy state programs.

The federal government will pay 90 percent of the expansion’s cost over time, though it will still require some state budget money. The quality of Medicaid coverage is often questioned by critics of expansion, but early evidence from the expansion states suggests that Medicaid has improved the financial security of its beneficiaries and may be offering health benefits, too. This study suggests Medicaid may also help people buying health insurance on their own.

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