How Much Will States’ Medicaid Expansions Really Cost?

Since the Supreme Court ruled on the Affordable Care Act, hardly a day goes by without some state official, somewhere, weighing in on whether his or her state will participate in the newly optional Medicaid expansion. At the same time, there are ever-present reminders that states are facing deep fiscal crises — partly caused by fast-increasing Medicaid costs — which means that joining in the expansion requires trust that the positives outweigh the pain.

What’s a governor to do?

The White House thinks the choice is obvious.

“It is the most generous federal match in the history of Medicaid,” Chief of Staff Jack Lew recently contended. “For those few [governors] that are slow to come in, they’re going to have to answer to people why they’re turning this down and why they’re letting people go without coverage,” he added.

But more than a few governors are lagging on a decision. About two-thirds of states remain either opposed to the expansion or are officially unsure — and based on their current Medicaid spending, as well as the new cost estimates they cite, it’s hard to blame them for being wary.

Backdrop: States Continue To Grapple With High Medicaid Costs

Governors’ challenges, from dwindling tax revenue to rising structural deficits, are deeply detailed in a 108-page report released this week by the State Budget Crisis Task Force. The task force offers a stark assessment: “Medicaid spending growth is crowding out other needs” for states and imperiling their fiscal sustainability.

The report also found that Medicaid currently represents about one-quarter of states’ general fund spending; the program’s costs to states grew at 7.2% per year across the last decade, far outpacing the 3.9% growth rate for state revenue.

Those high costs have backed officials into a corner, forcing them to continually come up with new ways to slice health spending. According to the Kaiser Family Foundation’s annual survey, nearly every state has cut Medicaid provider payments in the past two years. (The three that haven’t: Alaska, North Dakota, and West Virginia.) And with states continuing to reel from the economic downturn, those pressures won’t abate anytime soon.

How Much Will it Actually Cost?

One challenge for governors is getting accurate data on the costs facing their states. That’s especially true in states like Virginia and Illinois, which currently offer less-expansive Medicaid coverage and would need to raise eligibility levels in order to participate in the ACA’s Medicaid expansion.

For example, Texas Gov. Rick Perry — a staunch Republican who has formally rejected the Medicaid expansion — has contended that his state simply cannot support millions of new Medicaid enrollees. Because Texas has such a restrictive program, it would need to expand coverage before being eligible for the ACA’s Medicaid expansion; state officials initially estimated that the total costs would run to nearly $27 billion across 10 years.

However, the Center on Budget and Policy Priorities warns that many critics of the ACA “have heavily overstated the cost that various states will face.” That’s partly because they’re assuming that 100% of residents eligible for Medicaid will ultimately enroll in the program — despite “overwhelming” evidence to the contrary, such as years of means-tested programs like Medicaid being unable to achieve universal participation — and other assumptions that inflate the “crowd out” effect and per-beneficiary cost, CBPP suggests.

And there are signs that officials are trimming their original estimates, as they spend more time sifting through the ACA ruling’s impact; Texas’s health commissioner recently revised the state’s Medicaid expansion costs to about $16 billion across 10 years, or about $11 billion less than originally estimated.

Altogether, CBPP suggests that the additional cost to states will be just 2.8% per year between 2014 and 2022, or about $75 billion in total.

The Arguments For and Against the Expansion

The decision goes beyond a debate over cost estimates, though; it’s partly officials’ pragmatism, based on years of watching Medicaid program costs explode. Writing at Forbes, Avik Roy lays out governors’ case against the expansion:

  • They expect near-term high costs, borne by their own states and not the federal government, as previously eligible residents come out of the “woodwork” to sign up for Medicaid in states that currently offer skimpy coverage; and
  • They fear being stuck with future health spending, as the federal government gradually reduces its contribution, or if the program’s costs spiral out of control.

But Jonathan Cohn of The New Republic offers a rebuttal, noting that even if a state does not participate in the Medicaid expansion, the ACA’s individual mandate still will spur many previously eligible residents to sign up for the program — and “even states that opt out of the expansion will be on the hook for those costs.”

Looking Forward

The Congressional Budget Office is expected to issue its estimates of the ACA’s cost, post-Supreme Court ruling, within the next week. While the CBO’s estimates often turn out to be inflated, the agency’s data will offer new targets for opponents and supporters of the ACA expansion — and reset the debate over whether states should participate.

Here’s what else is happening around the nation

Administration Actions

In the States

  • In a letter to HHS Secretary Kathleen Sebelius last week, Maine Gov. Paul LePage (R) said his administration is preparing to submit documents about a plan to cut enrollment in the state’s Medicaid program, based on the U.S. Supreme Court‘s ruling on the Affordable Care Act. LePage and Attorney General William Schneider (R) said the ruling means Maine no longer requires a special federal waiver to make the cuts and does not have to abide by the law’s “maintenance of effort” provision (Galewitz, Kaiser Health News, 7/13). In related news, Rep. Chellie Pingree (D-Maine) last week urged the HHS to block Maine Gov. Paul LePage (R) from making cuts to the state’s Medicaid program (Baker, “Healthwatch,” The Hill, 7/10).
  • Governors sharply disagree on whether to participate in the federal health reform law’s Medicaid expansion and insurance exchanges, according to a recent USA Today survey examining states’ progress on implementing the Affordable Care Act. Seven GOP governors do not plan to expand Medicaid and 22 are undecided. Just four GOP governors are moving forward with the creation of health insurance exchanges. In contrast, 13 Democratic governors and one Independent are fully implementing the law and seven are undecided. More than half of all governors are unsure about their plans (Wolf, USA Today, 7/12).
  • In a letter to Virginia legislators last week, Gov. Bob McDonnell (R) said he is considering whether to opt out of the Medicaid expansion but noted that he needs more information before making a final decision. “A great expansion of Medicaid, without significant reform of the so-called ‘federal-state partnership,’ is not responsible,” McDonnell wrote. He told the General Assembly that he does not intend to convene a special legislative session to discuss the issue (Kumar, “Virginia Politics,” Washington Post, 7/10).

Rolling Out Reform

  • Federally run health insurances exchanges under the Affordable Care Act cannot legally provide subsidies to help U.S. residents purchase coverage, according to a paper in the Health Matrix: Journal of Law-Medicine. In May, the Internal Revenue Service issued a rule allowing both state-based and federally run exchanges to administer the subsidies. However, the paper states that the “IRS rule is illegal,” adding, “It is not authorized by [the reform law], nor can it be justified on other grounds” (Feder, Politico, 7/16).
  • The Obama administration is bending the law by providing bonus payments to lower-scoring Medicare Advantage plans, according to a letter by the Government Accountability Office‘s General Counsel Lynn Gibson. The federal health reform law authorized bonus payments to MA plans that have scores of four or five stars. However, CMS in 2010 expanded the program to provide bonuses to plans who receive three or 3.5 stars. Gibson’s letter comes after GAO in April released a report urging the administration to cancel the program (Dinan, Washington Times, 7/11).
  • Three former CMS administrators — who served under two Republican presidents — said they would urge the Obama administration and congressional Democrats to be flexible with states on the issue of the Medicaid expansion and avoid antagonizing states by issuing ultimatums on the expansion. They added that a rejection of the expansion should not be used as a litmus test for Republicans (Norman, Politico, 7/10).

Studying Its Effects

  • Fully implementing the Affordable Care Act will bring the U.S. more in line with Europe by insuring more women and reducing the overall cost of health care, according to a study by the Commonwealth Fund. The study urged states to participate in the Medicaid expansion (Viebeck, “Healthwatch,” The Hill, 7/13).

Public Opinion

  • Most voters believe the Affordable Care Act’s individual mandate constitutes a tax increase — in line with the Supreme Court‘s decision to uphold the law — according to a recent national poll by Quinnipiac University. The poll found that 55% of respondents believe the mandate is a tax increase, while 36% disagree. While a majority of respondents agreed with the court’s ruling on the mandate, they were divided over the court’s decision to uphold the entire law, with 48% approving and 45% disapproving of the ruling. In addition, 48% support and 43% oppose the GOP’s repeal efforts (Jackson, “The Oval,” USA Today, 7/12).

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