(Photo: Feng Yu/Dreamstime)

There’s a new study of how the Affordable Care Act, especially the Medicaid expansion, played out in California:

We show that a substantial share of the federally-funded Medicaid expansion substituted for existing locally-funded safety net programs. Despite this offset, the expansion produced a substantial increase in hospital revenue and profitability, with larger gains for government hospitals. On the benefits side, we do not detect significant improvements in patient health, although the expansion led to substantially greater hospital and emergency room use, and a reallocation of care from public to private and better-quality hospitals.

In other words, the expansion brought in federal money that benefited hospitals and government budgets, and it made care more accessible to patients, but gains to actual health are harder to find. This could partly be just a limitation of the study — for example, it finds a 7 percent reduction in in-hospital mortality, but it’s not statistically significant — but other studies have struggled to find health improvements from Medicaid as well.

And beyond measuring the efficacy of this major aspect of Obamacare, the paper really drives home the expansion’s game-theory dimension. States get to decide whether to expand Medicaid, but if they opt in, the federal government picks up almost all of the tab, spreading the cost throughout the whole country. (The federal share started at 100 percent and is slowly ratcheting down to 90.) If all the states opted out, federal taxpayers everywhere would save money — apparently at little cost in patient health — but as it is, the handful of states that haven’t expanded are passing up a pretty big check while their residents still pay federal taxes toward everyone else’s expansions.

To add insult to injury, in states that expand, much of that big check comes right back to state and local governments; at least some of the time, they get enough to reimburse them for their share of the initial cost and then some. In California, “about half” — half! — “of the Medicaid expansion replaced county safety net programs that previously would pay for hospital care for eligible uninsured low-income patients,” the new study finds.


California hospitals were big winners too, because Medicaid reimburses them at about twice — twice! — the rate those county programs do. Government hospitals “received nearly a 20% increase in total revenue per bed,” the paper says, despite the fact that they experienced lower patient volume because more people could go to private hospitals, which themselves saw revenue jump 8 percent per bed. Hospitals’ operating margins improved by about four percentage points as well, indicating they “do not seem to be deploying this income toward greater capital spending or expanding bed capacity, at least in the short run.” And though most private hospitals are nonprofit, to the extent this new money is spent in the state, governments will get another bite at it via income and sales taxes and the like.

Other states with less generous services will see less of an offset when they expand Medicaid, and it’s possible the program serves as a work disincentive to some degree, which would increase welfare use and decrease tax receipts. But despite efforts by some of my fellow conservatives to paint expansion as a bad deal for the states that opt in, at minimum it is very far from clear that this is the case. With Medicaid expansion, state governments get new money for things they’re already doing and create a windfall for hospitals.


Basically, we have a system that makes it entirely rational to dump tons of money into a health-care program that doesn’t improve health very much.