As South Dakotans Head to the Polls in Latest Push to Expand Medicaid, Potential Unintended Consequences Need to be Considered

Extending Medicaid coverage to new enrollees may come at the cost of existing beneficiaries

• Adding 45,000 South Dakotans to the Medicaid rolls would place additional strain on a health system already struggling to provide adequate care to existing beneficiaries.

• Medicaid expansions in other states have been linked to delays for doctors’ appointments, longer wait times for ambulances and even higher mortality rates.

• Expanding Medicaid creates financial and political incentives for state legislators to prioritize the interests of the newly-enrolled group over those of existing beneficiaries.

In November, South Dakota voters will decide whether their state becomes the 39th to expand Medicaid to cover low-income, able-bodied adults under the Affordable Care Act, adding an estimated 45,000 people to the program’s rolls. Although many factors need to be considered when evaluating such a large policy shift, the debate over Medicaid expansion – in South Dakota, as well as other states – too often ignores one important question: How would expanding Medicaid affect those who already rely on the program for their healthcare?

There are two main reasons to be concerned that expanding Medicaid could harm the program’s existing beneficiaries: health system strain and financial/political incentives. Let’s explore each in turn.

If the projections are correct, expanding Medicaid in South Dakota would increase program enrollment by about one-third. That is a very large shock to a health system reeling from the chaos of the pandemic and struggling to meet the needs of current Medicaid beneficiaries, including 13,600 seniors, 21,000 people with disabilities and 79,200 children.

Increasing Medicaid enrollment would lead to higher demand for healthcare services. This is just common sense, and in fact forms the core of the pro-expansion argument – that because uninsured and underinsured people are not receiving sufficient care, the government should intervene to help them. The best empirical evidence we have (from the RAND Health Insurance Experiment in the 1970s and 1980s and the Oregon Health Insurance Experiment in 2008) confirms that insurance coverage increases healthcare utilization – including hospitalizations, doctors’ visits, consumption of pharmaceutical drugs, etc.

But increasing healthcare utilization is a double-edged sword. South Dakota’s health system cannot quickly expand capacity (as the pandemic so starkly demonstrated). Building hospitals, training new doctors and nurses, and investing in new equipment takes years, even decades. 

Meanwhile, many areas are facing chronic provider shortages. A report by the Robert Graham Center notes that South Dakota’s ratio of primary care providers to population is below the national average, and recent projections suggest that by 2030 South Dakota may face a shortage of 1,900 registered nurses and 400 licensed practical nurses. Last year, nearly 300,000 South Dakotans lived in communities designated as Health Professional Shortage Areas (HPSAs) by the federal government. In this context, Medicaid expansion risks leaving fewer providers to care for those already on the program.

And if existing and newly enrolled Medicaid beneficiaries end up competing for the same healthcare services, the newly enrolled group is likely to come out ahead – not because its members have greater health needs, but because they’re better able to secure scarce resources. When doctors are in short supply, activities like scouring the internet for providers participating in Medicaid, calling different offices to inquire about appointment availability, and quickly seizing opportunities (e.g., being available to substitute for a no-show patient on short notice) are important determinants of who receives care and who doesn’t. In general, members of the newly enrolled group – composed mainly of non-disabled, childless, working-age adults – would be better positioned to engage in these activities.

Existing beneficiaries are less likely to have reliable transportation and more likely to have functional limitations (especially the aged and those coping with disabilities), family-related obligations (especially parents), and challenges with technology (especially the elderly) than newly enrolled individuals. Consistent with this hypothesis, a paper in 2021 found that, among previously eligible parents, Medicaid expansion was associated with increased delays in care due to a lack of transportation and increased inability to find a doctor. Other researchers have also found that Medicaid expansion was associated with longer wait times for appointments. A study of Maine and Virginia found that in the years following Medicaid expansion, both states experienced significant increases in wait times for veterans seeking community-based medical care. And a 2019 study suggested that the expansions of private and Medicaid coverage under the Affordable Care Act strained emergency medical services and slowed ambulance response times by an average of 24%.

Moreover, there are signs that these declines in access to care may have had serious downstream effects on people’s health. For example, a 2020 analysis estimated that, since states began expanding their Medicaid programs in 2014, all-cause, age-adjusted mortality trends have worsened in states that expanded Medicaid compared to states that did not. This finding, combined with compelling evidence that Medicaid expansion reduced mortality among those targeted to gain coverage, suggests that mortality may have increased in other segments of the population, such as existing Medicaid beneficiaries.

In addition to exacerbating health system strain and crowding-out existing beneficiaries, Medicaid expansion may shift the financial and political incentives for state legislators in ways that harm existing beneficiaries in the future.

Although there is no consensus on the correct solution, there is broad agreement that the Medicaid program is on an unsustainable fiscal trajectory. From 2000 to 2017, Medicaid grew from 8% to 13.7% of state spending in South Dakota, and has continued to climb in recent years. Sooner or later, state legislators will have to make tough decisions to restrain the program’s ballooning costs, including reining in benefits, tightening eligibility, or some combination of the two. Whatever changes are made will be deeply unpopular among affected Medicaid beneficiaries, and legislators will be eager to minimize political blowback. Medicaid expansion would give them strong incentives to impose most of the burden on existing beneficiaries.

For one, the Affordable Care Act created significant financial inducements for states to expand their Medicaid programs. If South Dakota adopts the expansion, the federal government will cover at least 90% of the costs for newly eligible adults. By contrast, the federal government typically covers only about 57% of South Dakota’s Medicaid spending on existing beneficiaries (the rate is currently higher – about 63% – due to COVID-related legislation, but is expected to drop to a lower rate after the public health emergency ends). In other words, a $1 appropriation of state funds for services to newly eligible adults draws down $9 in matching federal funds, while the same $1 appropriation for services to existing beneficiaries generates only $1.32 in federal aid. This discrepancy gives state policymakers an incentive to prioritize newly eligible recipients over the existing Medicaid population.

But the problem runs deeper than an imbalance of fiscal carrots. Existing Medicaid beneficiaries are among the least politically influential groups in the country. The vast majority are children who are ineligible to vote. Of the remainder, many reside in nursing homes or other institutions with few opportunities to vote or exert political pressure on policymakers. The fact that some 665,000 existing Medicaid enrollees – including children with intellectual/developmental disabilities, seniors with physical disabilities, and people with severe mental illness – languish on wait lists to receive special services illustrates that policymakers do not consider neglect for this group to be a political liability. Those made eligible through Medicaid expansion, on the other hand, likely have far higher rates of turnout and a much broader capacity to engage in the political process.

When the time comes for legislators in Pierre to curb Medicaid spending, is it unreasonable to think that election-minded policymakers might prioritize the interests of the relatively powerful over the powerless?

None of this is to say that the well-being of South Dakotans who stand to benefit from the expansion of Medicaid – some of whom are in desperate need of care and have no viable alternative source of coverage – should count for nothing. But while the first-order effects of any policy decision (such as thousands of uninsured individuals gaining health coverage) tend to capture our attention, the second- and third-order effects are often perceived only in hindsight, after the unintended harm has already been done.

Medicaid expansion is not a panacea. It requires trade-offs. Whether those trade-offs are acceptable is, in many ways, a personal normative judgment. But we deny the existence of the trade-offs at our peril.