This article originally appeared on heartland.org.
Indiana Gov. Mike Pence spoke at the American Enterprise Institute earlier this week in defense of his Medicaid expansion in Indiana. His position had been roundly denounced by most conservative and libertarian policy analysts. Here???s Josh Archambault, Jonathan Ingram, and Christie Herrera on the problems with Pence???s plan at Forbes.
Although a small number of childless adults previously qualified for the Healthy Indiana Plan, their enrollment was always subject to available funds from other Medicaid savings initiatives. The program capped the number of childless adults who could enroll at 36,500. Gov. Pence???s new plan turns that small, limited program into a massive new entitlement for childless adults.
Under HIP 2.0, more than 284,000 able-bodied childless adults (and 91,000 parents) will become eligible for Medicaid expansion, an increase of nearly 700 percent. And unlike the Healthy Indiana Plan, there is no cap on enrollment, obligating the state to provide benefits to those individuals regardless of the availability of funds.
Currently, the Healthy Indiana Plan only serves individuals earning below the federal poverty level, though it once served individuals with higher incomes. HIP 2.0 not only lifts the enrollment cap, it also increases the Indiana Medicaid eligibility from 100 percent to 138 percent FPL. Moreover, individuals earning more than 100 percent FPL are currently eligible for subsidies through the Obamacare exchange. They would be forced out of the exchange and into Medicaid under Gov. Pence???s proposal.
It???s true that HSAs can be a powerful tool to accumulate wealth and cut health care costs, but an incentive to save only works if the money saved is your own. In the case of HIP 2.0, these HSA-type accounts will be almost entirely taxpayer-funded, partly from Medicaid and partly from a tax on hospitals. The expansion thus provides strong incentives for enrollees to stay on Medicaid–especially because if they leave HIP, they lose the account. Enrollees can spend funds on any provider they choose, and whatever is unspent will roll over at the end of the year.
What???s more, HIP 2.0 contains an employer option that allows enrollees to pay for an employer-sponsored plan using their taxpayer-funded HSA account. In fact, the employer provision in HIP 2.0 will likely lead to crowd out–a migration of workers away from private employer coverage into Medicaid. This would quickly swell costs for Indiana taxpayers, especially if federal funding ever drops off.
According to Indiana???s proposal, if federal support is ever reduced the HIP 2.0 expansion ???will automatically terminate.??? This has become a common gesture in state expansion schemes. It is meant to mollify conservative skeptics, but the problem is that such a condition is simply not possible under federal Medicaid rules. In order to expand Medicaid a state must apply for a waiver and amend its state plan, and CMS must approve the amendment. Once that happens, the expansion becomes part of the state plan (really, a contract between the state and the federal government), and the feds have the authority to enforce that plan and withhold federal funding if the state does not comply with it.
Dean Clancy has more here. I understand how Mike Pence felt like he was in a jam because of the vulnerability of the Healthy Indiana Plan ??? the waiver request comes following a year of negotiation with the administration to try to save the plan begun under Mitch Daniels, a plan that had its problems, but at least it was on the small side. This plan is much larger, and coming as it does in a form that invests a new constituency in the permanence of Obamacare, it could have much broader negative consequences for the state.
For a rare defense of Pence???s plan from the right, read Grace-Marie Turner here, but even her praise is qualified the deeper you go. At least Pence got a few magic beans out of his negotiation with the Feds (compared to John Kasich and Chris Christie, who got nothing), but the political ramifications of this are going to significantly ramp up pressure on other Republicans. It serves ultimately as a vindication of the administration???s strategy on expansion: picking off governors one by one and getting them to expand what is effectively a new welfare entitlement for able-bodied adults.
Most of the critiques of Pence have focused on the politics of the issue assuming the waiver moves forward, but there is also a question of the viability of his request. After seeing his presentation and talking to him at a session following the event, I have my doubts this waiver will even go through. There are some key defects to this new proposal, particularly on the ???HIP Basic??? side. I challenged Pence on the enforceability of co-payments from people below 100% of FPL, and whether he could think of any precedent that would suggest CMS would believe those are enforceable. He couldn???t supply any, nor could either of his staffers.
Pence also has a couple of dangerous verbal tics of talking about the expansion as ???not a permanent entitlement??? and ???for working Indiana families??? ??? the first is something that makes Republican primary voters snort with derision, and the second simply isn???t true: There is no work requirement in the waiver, the expansion is overwhelmingly going to childless able-bodied people, and if someone were to work anywhere close to full-time for minimum wage in Indiana, they would barely qualify. A full-time minimum-wage worker last year made a little more than $15,000, more than $15,500 with the fully refundable Earned Income Tax Credit ??? Pence???s plan would incentivize them to work less, since they will lose their eligibility if they earn more than $16,105.
If CMS rejects his plan, it might actually be better for Pence???s political future as opposed to owning the ramifications of this approach two years from now. If CMS accepts it, we???re about to find out what happens when someone with a strong conservative record decides to try to make Obamacare work.