The Alexander Report on Medicaid expansion is fatally flawed

Credit: 401(K)2013/Creative Commons.

Credit: 401(K)2013/Creative Commons.

There will be plenty of time to thoroughly analyze how the Alexander report on Medicaid expansion came up with the result that everyone expected it to conclude.

And certainly a key element involves the assumptions made.

When you project into the future, you lay out some parameters and those have a major impact on the results. For instance, the Alexander report assumes substantial increases in poverty in Maine. So of course it ends up saying future costs will be pretty high.

But the flawed assumptions are not the only problem. Those are worth discussing, but this post points to another major problem.

The Alexander report is fatally flawed because it doesn’t consider net costs.

Even if the report’s projection of costs were right on — and the flawed assumptions make that highly unlikely — it misses the mark because it ignores revenues and funds that will cover some costs the state currently pays.

As one analyst notes:

[S]ome programs that are at least partly funded with state money, such as a program for low-income people who have HIV, would be funded entirely by the MaineCare expansion.

Another factor affecting net cost led some Republican governors to expand Medicaid. But the Alexander Report doesn’t include it.

Virtually every Republican governor who decided to expand Medicaid cites the positive impacts on economic growth. That growth generates jobs and jobs generate more people earning more money and paying taxes. This means expanding Medicaid not only involves the state government spending money but also gaining money.

Money flows into hospitals and other health care facilities, enabling them to stay financially healthy. They can keep people in jobs, hire more and expand their facilities. Not only are health care jobs affected but also construction jobs, plus all the jobs associated with people with these jobs spending money in their communities.

When conservative Republican Jan Brewer, Governor of Arizona, decided to expand Medicaid, she said, “It’s pro-life, it’s saving lives, it is creating jobs, it is saving hospitals.”

In Ohio, Republican Gov. Kasich decided to expand Medicaid expansion. His view?

Mr. Kasich, who has championed job creation as he prepares for a re-election campaign next year in his swing state, has argued that expanding Medicaid eligibility will be an economic booster shot. . .Expansion is supported by state hospitals, the County Commissioners Association of Ohio and the Ohio Chamber of Commerce. [source]

Ohio’s Chamber of Commerce is not unusual. Many of these groups, from Bangor to Boise, support Medicaid expansion.

Other Republican governors who have not yet decided to expand Medicaid are well-aware of these economic benefits and they are taking this into account as they decide what to do. As Ray Scheppach, former executive director of the National Governors Association, said, “I do think it is possible for some of the others [to expand Medicaid] as the numbers are overwhelming in terms of the positive economic impacts.”

So how does the LePage commissioned report handle this issue?

The Alexander Report mostly just ignores economic impacts from expansion, but not quite.

Tucked away in about the very middle of the report, on p. 61, one finds this:

Although an economic impact statement is beyond the scope of this study, an observation is offered. First, however, a word needs to be said about a number of recent economic studies that have been produced predicting economic benefits for states that expand. These studies appear to use theoretical assumptions from the Neo-Keynesian school of economic thought. They generally use models that apply a multiplier to new spending to demonstrate increased economic activity. These models are seriously deficient, however, because they do not adequately account for all economic losses from the revenue side of the equation. A more viable model would also estimate the opportunity costs due to the increased taxation, government borrowing, and other impacts. It is the net of the benefits and losses that defines the economic impact. [source]

This is fairly technical statement, so let me break down what’s wrong with it:

  1. It’s wrong about what economic models typically include.
  2. It means they punted on assessing how the expansion will affect economic growth. That’s what “an economic impact statement is beyond the scope of this study” means.

By not including the positive economic impacts from expansion, the study overstates the actual net cost of Medicaid expansion. Figuring out what expansion would actually cost requires including new costs and new revenues.

Business groups around the country and conservative Republican governors who have expanded Medicaid know that the expansion will be good for economic growth and thus good for revenues.

But not Mr. Alexander.

Even if its prediction of costs was correct — something which depends on underlying assumptions, which are highly problematic — the report is fatally flawed.

Amy Fried

About Amy Fried

Amy Fried loves Maine's sense of community and the wonderful mix of culture and outdoor recreation. She loves politics in three ways: as an analytical political scientist, a devoted political junkie and a citizen who believes politics matters for people's lives. Fried is Professor of Political Science at the University of Maine. Her views do not reflect those of her employer or any group to which she belongs.