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Friday, November 8, 2019

Medicaid Expansion Did Not Benefit Montana

Another research center tries to make the bad look good. In this case, it is an outfit at the University of Montana that claims Medicaid Expansion has done all kinds of wonders for the Treasure State. A closer look at their work tells a different story.

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One of the arguments thrown around in favor of Medicaid Expansion is that it creates jobs that otherwise would not have been created. This is boldly stated by the Bureau of  Business and Economic Research (BBER) at the University of Montana. In a report published in April 2018 the BBER claims that Medicaid Expansion in Montana
infuses a significant amount of money into the state's economy. During its first two years, Medicaid expansion provided beneficiaries more than $800 million of health care. The federal government paid for most of this, and most of these federal dollars would not have been spent in Montana without Medicaid expansion. Approximately 75 to 80 percent of Medicaid spending is new money in Montana.
There are a few problems with this report - problems that need highlighting since the report is being used to promote Medicaid Expansion in Wyoming. The first of them is highlighted already in the reported spending numbers: they make it sound as if Medicaid Expansion can take credit for this increase in health-care spending, and - as the report continues - that it is due primarily to the fact that people who had skipped getting health care due to cost, were now getting health care. 

First of all, as the report notes in its own Appendix, they do not isolate Medicaid Expansion enrollees. The numbers they quote for people who got health care in 2016 who did not get it in 2015, includes everyone in Montana who earns less than 150 percent of FPL. However, some of the people in that population do not even qualify for Medicaid Expansion - the threshold, in Montana as elsewhere, is at 138 percent of FPL. Furthermore, some of those who do qualify are on private insurance, which means that the increase in health care consumption could just as well be due to an increase among them.

It is worth mentioning that in 2015, seven in ten Montana residents had private insurance. This was up from 62 percent in 2010, a significant and robust increase that we will get back to in a moment; for now, let us note that this increase reflected employment growth that very well could explain a good part of the increase in health care consumption that the BBER reports. When people get jobs, they enjoy benefits and change their consumption habits. This includes consumption of health care.

In other words, the first problem with the BBER Medicaid Expansion report is that it draws conclusions that are not merited from the data they examine.

Secondly, they couple their "increased consumption" data for Montana with an aggregate of similar numbers from other expansion states. The reported increase in health care consumption is supposed to validate the Montana numbers, but these numbers are subject to the same methodological flaw as the Montana numbers. 

The first rule of logic is that you don't fill the voids in your argument with hot air.

A third problem is the short period of time they examine. Reporting data from 2015 to 2016 willfully ignores trends - and trends are hugely important in economic analysis. In fact, if you don't put your analysis in the context of relevant trends, you are flying blind in the dark. 

It is not at all the case that Medicaid Expansion has made this big difference for the better that the BBER report tries to claim it has. On the contrary, Expansion has broken a positive trend in both private-insurance enrollment and - behold - in the rate of people without insurance. Here are the numbers for enrollment in private insurance and Medicaid, and the number of Montanans without insurance (Medicaid Expansion years marked with yellow):

Table 1
Source: Census Bureau

All Montanans; thousands
Private Medicaid Uninsured
2010 608 139 178
2011 610 122 180
2012 631 130 181
2013 650 148 165
2014 674 150 143
2015 709 152 119
2016 702 203 83
2017 697 212 88
2018 697 223 86

From 2010, the bottom of the Great Recession, to 2015, the year when Montana enacted Medicaid Expansion, a total of 101,000 people were added to the private insurance plans offered by employers around the state. During that period of time, the number of uninsured residents in The Treasure State fell by 69,000. Statistically, it is valid to conclude that about seven in ten persons who got private insurance during that period of time had no insurance prior to enrollment.* In fact, in 2013, 2014 and 2015 the increase in private enrollment and decrease in the uninsured population match each other almost perfectly.

Then comes Medicaid Expansion. As soon as it goes into effect, Medicaid enrollment jumps by one third - and the robust growth in private health insurance grinds to a halt. An annual average three-percent growth in private health insurance turns into a small decline; in fact, in 2015, the same year as Montana decided to boondoggle its Medicaid program, private health-insurance coverage expanded by 5.2 percent. 

The year after it fell by one percent. 

Even more conspicuous is the trend in the uninsured population. from 2010 to 2015 that population fell by one third; after the first year of Medicaid Expansion the number of uninsured has gone up a little bit. 

Medicaid Expansion broke trend of fewer uninsured people in Montana.

Only one substantial result has emerged from the Expansion in Montana: that the Medicaid-dependent population has increased by 47 percent. 

In short: the benefits that the BBER report claims have come in the form of health care consumption have come at the expense of a decline in private health-insurance coverage, a halt in the trend of reducing the uninsured population, and an increase in the Montana health care system's dependency on taxes to fund its operations. 

But this is not all. The BBER report also makes the audacious claim that Medicaid Expansion created a substantial increase in health care spending - one that apparently did not happen prior to Expansion. Here, they start poking around with statistics and institutional settings for their analysis to a point where I doubt that even the report's authors know what they are doing. First of all, to estimate health care spending per person with insurance they use a regression model - instead of simply looking at total health care spending and dividing it per capita. This forces them to use numbers for their analysis that are conditioned by all the variables computed into the model, variables that - as a general point - are often conditioned by more or less unwarranted theory, and sometimes even by pure conjecture.

This is a fancy methodology that they teach in great abundance in economics grad school, but its usefulness in public policy is so scant that I, frankly, don't know a single economist outside of academia who still uses it, other than as a very rare, isolated exception. Even when that happens, they get results that are practically no different from what you get using methodology from good old political economy to intelligently examine raw data and bring it together with established trends and solid theory.

But let us not get bogged down in a methodology match for Ph.D's. Let us get back to Montana, and do a simple experiment of our own. 

The BBER study suggests - not explicitly but not very subtly either - that Medicaid Expansion has reduced the number of uninsured and caused a $166 million increase in health care spending in Montana. This is supposed to have happened in 2016. 

This means $4,611 per uninsured who got insurance, a number that is very close to the national-average spending per person enrolled in private insurance. The BBER study uses this number to estimate the increase in health care spending - in Medicaid Expansion! 

Again, the report violates the basics of logic and common sense. They take a number, the reduction in the uninsured population, assume that it has happened thanks to Medicaid Expansion (when in reality Expansion has ground to a halt the trend of decline in the uninsured) and then uses a per-capita spending figure that is not from Medicaid, but from private insurance - to measure the benefits of Medicaid Expansion. (Per-enrollee costs in Medicaid are usually almost twice those in private insurance.)

No, I am not making this up.

But let us use their erroneously derived number against them. As mentioned, from 2010 to 2015, prior to Medicaid Expansion, 59,000 uninsured people got on some kind of insurance, statistically private insurance. Based on the $4,611 per-capita spending number, this increase in insurance coverage brought an extra $272 million in spending to hospitals, clinics and other health-care providers in Montana. 

For some inconceivable reason, the BBER report does not mention this. Not at all. Nor do they mention that: 

  • if the Montana economy had just been left alone by the state government;
  • if private insurance had been allowed to continue to grow unfettered by Medicaid Expansion; and
  • if its spending per enrollee had continued grown along with the national average over the past eight years;

then private-insurance providers would have spent over $311 million more in Montana than they actually did. In 2017 alone. 

This, of course, would have meant a substantially lower dependency on taxpayers for the state's health care industry, but I doubt that the BBER - an outfit under a tax-funded university - is very much worried about that part.

What they should be worried about is the legitimacy of their claim that Medicaid Expansion has led to more jobs in Montana. Here, again, we have to note that they do not consider trends, nor do they use any control group to check no their results. 

Looking at their numbers for Montana, they claim that by 2018, two years into Medicaid Expansion, this new tax-funded health care spending has created "approximately 2,000 additional health care jobs". In other words, they are crediting Medicaid Expansion for just below half of all the jobs created in the private health-care industry in Montana.** This claim is based on their creatively derived suggestion that Medicaid Expansion has brought a substantial amount of new health-care spending to Montana. 

Again, though, their claim falls on its isolation in time and space. First of all, they don't mention that health care employers in Montana added jobs at a steady pace in the years before Medicaid Expansion: in 2015 there were ten percent more people working in health care in the state than there were in 2010. 

The BBER report also fails to mention that in 2018 the jobs-growth trend came to a halt. In fact, 2018 was the worst year since the Great Recession for Montana's health care industry. It remains to be seen if this is directly related to the slow decline in private insurance coverage.

And now - just to finish the job that the BBER report should have done, had they been methodologically ambitious. Let us bring in a control group, namely a state that has not adopted Medicaid Expansion: South Dakota.

From 2010 to 2018, health care employers in Montana expanded employment by, on average, 1.9 percent per year. This is for the entire period, both pre- and post-Expansion. During the same period of time, health care providers in South Dakota added jobs at a pace of 1.7 percent per year. 

Barely indistinguishable. 

In 2016-2018, the years that the BBER report claims so wonderfully prove the benefits of Medicaid Expansion, health-care jobs in Montana grew at 2.1 percent per year. In South Dakota the growth was 2.0 percent per year. 

That's what I call solid results from spending more of taxpayers' money. And jus to drive home the point: in 2018, when Montana health jobs grew by a microscopic 0.3 percent, the same sector in South Dakota expanded payrolls by a full two percent.

From hereon, it is downhill for the BBER report. Every claim they make of economic benefits from Medicaid Expansion hinge critically on what they opined about increased health-care spending and growth in health-care jobs. Since neither number holds up to scrutiny, their entire case in defense of Medicaid Expansion is void.

I would not recommend that anyone in Wyoming uses their report to defend Medicaid Expansion in down here.
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*) Whether this is true at the individual level is something we cannot find out without a very detailed, very costly survey. Neither I nor the BBER have conducted one.
**) The Bureau of Labor Statistics does not break down government jobs to a comparable level, thus preventing a comparison with government-provided health care. The BBER report also fails to distinguish between health-care jobs in the private sector and in government; it is fair to assume that all their purported new jobs were created in the private sector.

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