The good news is that the alleged bad news about Medicaid changes is good news for Louisianans.

One reform encapsulated in last year’s One Big Beautiful Bill knocks out a loophole that disfavored Medicare patients relative to those on Medicaid, increased the number of less-valuable interventions, and distorted private sector pricing. At the tail end of the Democrat Pres. Barack Obama Administration, to encourage greater Medicaid enrollment, including by sucking in states to accept expansion (which Louisiana foolishly did), the federal government began subsidizing state Medicaid plans to boost rates. Often, states reimbursed at rates below commercial charges and even Medicare’s, which could reduce the supply of providers and thereby lower the amount of care available to the Medicaid population.

This wealth transfer from federal taxpayers to states also was supplemented in most states by allowing them to levy provider taxes and count straight-up government appropriations as matching monies. These policies facilitated boosts in Medicaid spending to prop up rates to commercial levels, which could be double or more Medicaid rates. For example, Louisiana’s managed care organizations provide insurance for almost all of the non-waiver Medicaid population – the vast majority of Medicaid clients – and, for hospitals, state-directed payments, provider taxes, and (for Louisiana State University Health Sciences Center New Orleans) intergovernmental transfers are used to peg Medicaid rates at or near commercial rates.

That is why one set of researchers claims Louisiana clients could face a squeeze on care. The changes last year, with qualifying grandfathered payments beginning their phase-down in 2028, will allow SDPs only up to 100 percent of Medicare rates in expansion states like Louisiana. The authors allege that this will encourage fewer providers to take on Medicaid patients, meaning reduced care, as the cost of providing services could exceed reimbursements. As Louisiana is one of the largest practitioners of SDP usage, they envision a disproportionate impact on the state’s Medicaid population.

Yet that ignores that if Louisiana pegs Medicaid rates at Medicare’s, why should there be a large negative service impact if there already isn’t one for Medicare? In fact, the imbalance favoring the former over the latter still would exist, if smaller, because the Medicare population is older, thus generally sicker, and has more disabilities (people legally classified as disabled for Social Security payments automatically qualify for Medicare regardless of age) and therefore might squeeze margins more, while their co-payments might be higher if they pass their deductibles, while few Medicaid clients in Louisiana have co-payments beyond prescriptions.

Also, the volume of services delivered actually could increase. If the new rates make for thin margins, then higher delivery volume can increase revenue, creating an incentive to see more patients. And if margins turn negative and some providers bail out, the longer wait times that will ensue will create incentives for that segment of the expansion population able to obtain other insurance relatively easily (about a third to a half of those that glommed onto expansion previously had insurance by other means), some of whom will exit expansion, leaving more room for others with more genuine need for service acquisition.

Besides redressing the imbalance, state taxpayers also will save. The impact of provider taxes and intergovernmental transfers distorts the market by having states focus more on capturing federal dollars than on providing efficient services. This also raises taxes or beggars money from spending elsewhere and raises commercial premiums, as providers play a shell game by offloading the costs of the tax onto the rates they charge to private-pay patients, which lightens taxpayers’ pockets further.

In addition to saving federal taxpayers about $500 billion over the next decade, states as a whole will save $250 billion collectively through lower taxes, rates, and programmatic spending. Seeing as service provision would be only marginally curtailed, if at all, that’s a big win for Louisiana.