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The Federal Financial Commitment to the Medicaid Expansion Stands

Health reform’s Medicaid expansion is a great deal for states.  The federal government will finance nearly all of its costs, picking up 100 percent of expansion costs for the first three years (2014-2016) and no less than 90 percent on a permanent basis.  In fact, as a recent analysis from Virginia shows, the Medicaid expansion can actually save states money.

Some policymakers who oppose health reform in states that have not yet taken up the expansion, however, continue to claim that the federal government will renege on its financial commitment to the expansion.  They argue that states shouldn’t adopt the expansion because federal deficit reduction efforts will inevitably lead to requiring states to pay for a greater share of the expansion costs.  There is no evidence to support this claim.

Federal spending on both Medicaid and Medicare has been growing much slower in recent years than previously projected.  The Congressional Budget Office (CBO) expects the federal government to spend $1.2 trillion less on Medicare and Medicaid between 2010 and 2020 than CBO estimated in March 2010 (see chart).  We have similarly found that projected federal Medicaid spending will be $311 billion — or 9.2 percent — lower between 2010 and 2020 than what CBO previously projected even after excluding the effects of the Medicaid expansion (such as the Supreme Court decision that made the expansion a state option, which had the effect of lowering federal spending).

As a result, pressures to cut Medicaid and shift costs to states as a strategy to cut the deficit have dissipated.  For example, policymakers didn’t seriously target Medicaid as a source of savings in crafting either of the last two major federal budget agreements: the 2012 “fiscal cliff” budget deal and the December 2013 budget deal between Senate Budget Chair Patty Murray and House Budget Chair Paul Ryan that funded the government for the rest of the fiscal year.

In addition, as we have previously pointed out, the Obama Administration has said that it will oppose any cost-shifts to states that would deter states from taking up the Medicaid expansion.  That’s why it dropped from its own budget last year two Medicaid proposals it once supported that would shift costs to states.  As National Economic Council Director Gene Sperling stated last January, states should expand Medicaid “with the understanding that the rug will not be pulled out from underneath them” and that “[w]e are not willing to accept even the Medicaid savings that we had once put on the table … Medicaid savings, Medicaid cuts, for this administration, are not on the table.”

In fact, as we have noted, the only federal policymakers now pushing for major cuts to Medicaid that would significantly shift costs to states — like converting Medicaid to a block grant or setting per capita caps on federal Medicaid funding — are congressional health reform opponents who would gladly undermine a key element of the Affordable Care Act.  But their proposals face intense opposition and have no prospect of becoming law.


01 2014

More Evidence That Medicaid Expansion Makes Fiscal Sense for States

Armed with new data, Virginia’s Medicaid agency estimates that adopting health reform’s Medicaid expansion — which it originally estimated would cost the state $137 million through 2022 — would actually save the state more than $1 billion over that period.  That echoes what we’ve said all along:  expanding Medicaid is a good deal for states.

Opponents of the Medicaid expansion have often cited flawed studies that exaggerate its cost to states, such as by assuming that newly eligible Medicaid enrollees would be much sicker (and thus more expensive to cover) than current enrollees.  Analysis shows the opposite is true: non-disabled adults who newly enroll into Medicaid are more likely to be healthier than those who are already enrolled.

Virginia’s Department of Medical Assistance Services (DMAS) now agrees.  Looking at new data and other states’ experience with recent Medicaid expansions, DMAS found that uninsured adults who newly enroll into Medicaid would likely have the same, if not lower, costs than currently enrolled adults.

DMAS also significantly raised the estimate of how many uninsured people would newly qualify for Medicaid under an expansion.  This means Virginia would have to spend even less to reimburse hospitals for uncompensated care for the uninsured than under the earlier estimate, since more of the uninsured would have Medicaid.  And, the drop in Virginia’s uncompensated care costs through 2022 would more than offset Virginia’s cost of covering newly eligible Medicaid beneficiaries over that period (in part because the federal government will reimburse 100 percent of the cost of covering these new enrollees through 2016), producing a net saving for the state.

States that have not expanded Medicaid can’t keep ignoring the fact that expanding Medicaid has significant benefits for states.


01 2014

The Growing State Cost of Not Expanding Medicaid

Policymakers in some of the 25 states that haven’t expanded Medicaid as part of health reform (see map) are putting expansion at the top of this year’s legislative agenda.  The New Hampshire House passed an expansion bill on the first day of its session last week, for example, and Virginia Governor Terry McAuliffe advocated for expansion in his first address to lawmakers.  These policymakers are wise to prioritize the Medicaid expansion, as the costs of not expanding have begun to accrue:

  • States’ failure to expand has created a “coverage gap” containing nearly 5 million people.  People in this gap — which includes more than a quarter of the uninsured, non-elderly adults in these 25 states, according to a recent analysis by the Kaiser Commission on Medicaid and the Uninsured — are shut out of health reform’s coverage options.  Their income is too low to qualify for help buying private coverage through the new marketplaces and too high to qualify for Medicaid.
  • States that haven’t expanded are missing out on a very good financial deal.  The federal government will pick up 100 percent of the cost of covering newly eligible people through 2016 and no less than 90 percent of the cost after that.  So, the amount of federal money that states forgo by not expanding will continue to grow.
  • States that have expanded expect slower growth in state Medicaid costs than states that haven’t expanded.  This finding, from a recent Kaiser survey of states, reflects the fact that expansion states anticipate savings in state-funded services that they have provided to uninsured individuals who are now eligible for Medicaid.  Examples include mental health care, corrections-related health care, and uncompensated care.


01 2014

Iowa’s Medicaid Expansion Has Lessons for Other States

The Department of Health and Human Services (HHS) last week approved Iowa’s proposal to adopt health reform’s Medicaid expansion through a pair of demonstration projects, often called “waivers.”  As a result, more than 100,000 uninsured Iowans will be newly eligible for health coverage starting January 1.

That’s great news.  HHS’s decision is important for other states because it suggests that federal officials will work with states to craft a reasonable expansion plan but won’t approve proposals — like one from Pennsylvania Governor Tom Corbett, described below — that would make it hard or nearly impossible for eligible people to get needed coverage.

Under Iowa’s plan, the state will use Medicaid funds to buy private coverage in health reform’s new marketplace for people with incomes between 100 and 133 percent of the poverty line.  After the first year, people in this income range will pay roughly the same premiums as if they were receiving premium tax credits to buy coverage themselves through the marketplace.  But people who complete a wellness exam and an assessment of their health risks won’t have to pay premiums; nor will people who suffer financial hardship.

While approving those parts of Iowa’s plan, HHS denied Iowa’s request to charge premiums to beneficiaries with incomes below the poverty line and to cancel their coverage if they miss payments.  This maintains the important principle that poor people shouldn’t face premiums for health coverage.  Research shows that premiums reduce participation in Medicaid and make it harder for people to maintain coverage.

The limits that HHS imposed on Iowa’s plan are especially important given recent news out of Pennsylvania.  There, Governor Corbett has proposed expanding Medicaid but with requirements that would make it hard for many low-income people to qualify.

The governor’s plan would require people with incomes as low as 50 percent of the poverty line ($5,745 a year) to pay premiums.  It also includes stringent work requirements that would likely make it very difficult for many people to get or maintain health coverage.  It would, for example, force a single mother with two kids who is working fewer than 20 hours a week to jump through a series of administrative hoops in order to gain and maintain coverage.

These parts of Pennsylvania’s proposal go beyond the appropriate flexibility that HHS has given states.  Governor Corbett should abandon them, if he wants to take advantage of health reform’s opportunity to bring coverage to hundreds of thousands of Pennsylvanians.


12 2013

States Can Reduce Kids’ Uninsured Rate Further by Expanding Medicaid

The Georgetown University Center for Children and Families’ annual report on children’s health coverage, released today, brings welcome news:  the rate of children without health coverage fell for the fifth consecutive year, from 9.3 percent in 2008 to 7.2 percent in 2012 (see chart).

The report notes that state decisions whether to expand Medicaid under health reform, which would extend coverage to adults earning less than 133 percent of the federal poverty line ($25,975 for a family of three), will build on these gains in children’s coverage.  Here’s why:

Nearly 70 percent of the nation’s 5.3 million uninsured children are already eligible for Medicaid or the Children’s Health Insurance Program but are not enrolled, according to Georgetown’s researchers.  When states expand Medicaid for parents, the number of uninsured children falls, because parents are more likely to sign up their eligible children for coverage when the whole family can get coverage, research shows.  Research also finds that when parents have coverage, their children are less likely to experience breaks in coverage and are more likely to receive preventive care and other needed care.  As a result, making coverage available to more low-income parents through health reform’s Medicaid expansion should further reduce the ranks of uninsured children.

Twenty-five states and the District of Columbia already have decided to expand Medicaid next year.  As policymakers in Maine, New Hampshire, Pennsylvania, Tennessee, Virginia, and other states contemplate whether to expand their Medicaid programs, they should consider the positive impact that expansion will have on children’s health coverage and access to needed care.