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States’ Very Good Deal on Expanding Medicaid Gets Even Better

In a little-noticed finding in last week’s Congressional Budget Office (CBO) report on health reform, CBO sharply lowered its estimates of how much the Medicaid expansion will cost states.  We’ve noted repeatedly that the federal government will cover the large bulk of the expansion’s cost.  As our new report explains, these new figures make it even clearer that the expansion is a great deal for states.

  • CBO now estimates that the federal government will, on average, pick up more than 95 percent of the total cost of the Medicaid expansion and other health reform-related costs in Medicaid and the Children’s Health Insurance Program (CHIP) over the next ten years (2015-2024).
  • States will spend only 1.6 percent more on Medicaid and CHIP due to health reform than they would have spent without health reform (see chart).  That’s about one-third less than CBO projected in February.

Moreover, the 1.6 percent figure doesn’t reflect states’ savings in providing health care for the uninsured, many of whom will now have Medicaid coverage.  The Urban Institute has estimated that if all states took the Medicaid expansion, states would save between $26 billion and $52 billion from 2014 through 2019 in reduced spending on hospital care and other services provided to the uninsured.

Ryan Budget Again Proposes a Medicaid Block Grant, Adding Millions to the Ranks of the Uninsured and Underinsured

House Budget Committee Chairman Paul Ryan’s new budget again proposes to radically restructure Medicaid by converting it into a block grant, and it would cut federal Medicaid funding steeply, by $732 billion over the next decade.  It would also repeal health reform’s Medicaid expansion.  The combined total cut to Medicaid would exceed more than $1.5 trillion over ten years, relative to current law.  All told, it would add tens of millions of Americans to the ranks of the uninsured and underinsured.

Repealing the Affordable Care Act’s Medicaid expansion means that 13 million people would lose their new coverage or no longer gain coverage in the future; 13 million is the Congressional Budget Office’s (CBO) current estimate of the number of people who would eventually gain coverage under the Medicaid expansion, though the number could rise as high as 17 million if all states adopt the expansion.  In addition, the large and growing cut in federal Medicaid funding from the block grant would almost certainly force states to sharply scale back or eliminate Medicaid coverage for millions of low-income people who rely on it today.  (More than 40 million people would likely become uninsured as a result of the Ryan budget overall after also taking into account the repeal of health reform’s exchange subsidies.)

Under the Ryan plan, the federal government would no longer pay a fixed share of states’ Medicaid costs starting in 2016.  Instead, states would get a fixed dollar amount that would rise annually only with inflation and population growth.

  • The block grant funding would fall further and further behind state needs each year.  The annual increase in the block grant would average about 3.5 percentage points less than Medicaid’s currently projected growth rate over the next ten years, which accounts for factors like rising health care costs and the aging of the population.  Federal Medicaid and Children’s Health Insurance Program (CHIP) spending in 2024 would be $124 billion less — or 26 percent less — than what states would receive under current law, according to the Ryan budget (see chart).  And the cuts would keep growing after that.
  • Altogether, the block grant would cut federal Medicaid spending by $732 billion from 2015-2024, according to the Ryan budget plan.  (It is conceivable that a small share of these cuts could come from CHIP, which the Ryan budget would merge into its new Medicaid block grant.)  This would be an estimated cut to federal Medicaid and CHIP funding of more than 19 percent over the ten years as a whole, compared to current law — and doesn’t count the loss of the large additional funding that states would receive to expand Medicaid under health reform.
  • The loss of federal funding would be even greater in years when enrollment or per-beneficiary health care costs rose faster than expected, such as during a recession or after the introduction of a new, breakthrough health care technology or treatment that improved patients’ health but increased cost.  Currently, the federal government and the states share in those unanticipated costs; under the Ryan plan, states alone would bear them.

As CBO concluded when analyzing the similar Medicaid block grant proposal from the Ryan budget plan from two years ago, “the magnitude of the reduction in spending . . . means that states would need to increase their spending on these programs, make considerable cutbacks in them, or both.  Cutbacks might involve reduced eligibility . . . coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries — all of which would reduce access to care.”

In making these cuts, states would likely use the expansive additional flexibility that the Ryan plan would give them.  For example, the plan would likely let states cap Medicaid enrollment and turn eligible people away from the program; under current law, states must accept all eligible individuals who apply.  It also would likely let states drop certain benefits that people with disabilities or other special health problems need.

The Urban Institute estimated that Chairman Ryan’s similar block grant proposal in 2012 would lead states to drop between 14.3 million and 20.5 million people from Medicaid by the tenth year (outside of the effects of repealing health reform’s Medicaid expansion).  That would result in a reduction in enrollment of between 25 percent and 35 percent.  The Urban Institute also estimated that the block grant likely would have resulted in cuts in reimbursements to health care providers of more than 30 percent by the tenth year.  This year’s proposal likely would result in cuts that are similarly draconian.

Two Takeaways From New Hampshire and Michigan’s Medicaid Expansions

New Hampshire’s legislature has passed and Governor Maggie Hassan has signed into law legislation that will expand Medicaid as part of health reform effective July 1.  This means that combined with Michigan, where expansion takes effect tomorrow, an additional 600,000 uninsured people will be newly eligible for Medicaid coverage.  It also means a majority of states have taken health reform’s Medicaid expansion, as our map shows.

For policymakers in Maine, Missouri, Utah, Virginia, and other states currently debating whether to expand, the news from New Hampshire and Michigan offers important lessons:

  • Federal officials are willing to work with states to craft reasonable expansion plans.  The legislation passed in New Hampshire directs state officials to pursue a demonstration project — often called a “waiver” — that would use Medicaid dollars to buy coverage for newly eligible beneficiaries through the marketplace.  If approved, this approach would be similar to those in place in Arkansas and Iowa.

    New Hampshire likely will gain federal approval for its demonstration project because it steered clear of onerous provisions being discussed in other states that would make it difficult, if not impossible, for people to gain and maintain coverage.  For example, policymakers in Pennsylvania and Missouri have discussed tying people’s Medicaid eligibility and premium obligations to whether they are working or actively looking for work.  Such provisions have no relation to the purpose of Medicaid, which is to provide health coverage to people with low incomes.

  • States can expand at any time, but the sooner, the better for states and the uninsured.  The Medicaid expansion is a great deal for states, but especially so from now through the end of 2016 while the federal government pays the entire cost of covering the newly eligible.  (The federal government will pay no less than 90 percent of the cost in the years thereafter.)  While New Hampshire’s proposed waiver will not take effect until January 1, 2016, newly eligible beneficiaries will be able to enroll in the state’s existing program on July 1 of this year.  This is a win for both the Granite State’s finances and for the uninsured.

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03 2014

President’s Budget Reaffirms Federal Commitment to Pay for Nearly All of Medicaid Expansion

As policymakers in a number of states debate whether to adopt health reform’s Medicaid expansion, opponents continue to claim that the federal government, in the name of deficit reduction, will inevitably renege on its commitment to fund nearly all of the cost and instead shift large costs to states.  As Florida state senator Jeff Brandes put it recently, “Why in the world would we take the federal government’s . . . promise that they’ll pay for [the] Medicaid expansion when we know that they will be unable to keep that promise in the long run?”

But, there’s no evidence to support that argument, as we’ve pointed out (see here and here).

The Obama Administration has repeatedly said that it will oppose any cost-shifts that would make states less likely to take up the Medicaid expansion.  And, the President’s new budget reaffirms yet again that the federal government will pick up nearly all of the expansion’s costs:  100 percent for the first three years (2014-2016) and no less than 90 percent on a permanent basis.

Like last year’s budget, the President’s budget has no Medicaid proposals that produce federal savings by shifting costs to states.  It instead proposes to achieve some Medicaid savings by lowering the program’s prescription drug costs.

Moreover, as we’ve pointed out, pressures to cut Medicaid and shift costs to states in order to reduce the federal deficit have dissipated.  In fact, the only federal lawmakers now pushing to shift Medicaid costs to states are not health reform proponents but instead those who oppose health reform and who would convert Medicaid to a block grant or set a per capita cap on federal Medicaid funding.

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03 2014

Failing to Expand Medicaid Costs Individuals, Too

We’ve written about the growing cost to states of not expanding Medicaid as part of health reform.  But let’s not forget that state policymakers’ decisions not to expand have a severe human cost, too, as an article in today’s Wall Street Journal makes clear.

The Journal details the plight of uninsured low-income workers in Alabama — one of the states that hasn’t expanded Medicaid — who are struggling to afford medications for chronic health conditions, or are forgoing needed care entirely because they lack health coverage.  These are some of the nearly 5 million individuals in 25 states caught in a “coverage gap” — with income too low to qualify for help buying private coverage through the new marketplaces and too high to qualify for Medicaid — that exists because their state has not expanded Medicaid (see chart).

While Alabama Governor Robert Bentley opposes the expansion, a growing number of policymakers in non-expansion states are realizing that it doesn’t have to be this way.  Utah Governor Gary Herbert has announced he will push to expand this year because “doing nothing is not an option.”  And lawmakers in Nebraska, New Hampshire, and a handful of other states are charting their own paths toward expansion.

The Medicaid expansion is a good financial deal for states, and they can expand with the knowledge that the federal financial commitment to the expansion is solid, as we’ve previously explained.  Today’s Journal makes it clear how much individuals stand to gain from expanding as well.

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02 2014