Policy-ish

Medicaid Pain Might Be Less Than Governors Claim

When 20 states filed suit over the new health law just after President Obama signed it in March, the expansion of Medicaid was a major part of their beef.

Medicaid is the program that provides health care to the poor. It's federal-state shared funding is the subject of a perpetual tug-of-war between governors and the feds.

But a new study suggests that the Medicaid expansion might cost states less than they think, and some states might actually make money on the deal.

The study found, not surprisingly, that expanding Medicaid eligibility to everyone below 133 percent of the federal poverty line, including previously ineligible childless adults, would dramatically increase the Medicaid rolls (by roughly 16 million people) and dramatically decrease the number of people without health insurance (by roughly 11 million people) by the year 2019.

What was surprising was how little it would cost the states. Of the total 464.7 billion the study estimates the Medicaid expansion will cost between 2014 and 2019, the federal government is expected to pick up $443.5 billion OF THE TAB. On average, the federal government will pick up 95.4 percent of each state's expanded costs over that period.

"The increases in state spending are pretty small compared to the increases in coverage and relative to what states would have spent if there had been no reform," said Urban Institute researcher John Holahan, the study's lead author, at a briefing on the issue.

In fact, Holahan says, that's probably an underestimate. With so many more people covered, states will be able to cut back on other money they now spend on things like free health care for people who don't have insurance — something the study wasn't able to take into account.

"I think if we had been able to account for that, that we would show that the savings to states from no longer having to share as large a burden as they do now for uncompensated care would probably be greater than their new obligations for medicaid spending," he said.

Then why are states still so unhappy? Alan Weil, executive director of the National Academy for State Health Policy, says some states think of the Medicaid expansions as a pair of $200 shoes on sale for $20.

"If you like the $200 pair of shoes it's a great deal because you only have to pay 20 dollars." But at the same time, he says, "if you look in your wallet and you have a 10 and a couple of ones and some change and you're not sure you can come up with the 20 dollars it doesn't really matter what a good deal it is."

Thus, he says, "much of the difference in perspectives in state response to the Medicaid expansion has to do with whether they're focusing on what they're going to get ... or what they feel they can afford."

Weil says states are also worried about the problem of capacity. Many are looking at what could be a 50 percent increase in their Medicaid rolls. "That raises serious concerns about provider and delivery system capacity. Managed care plans, hospitals, physicians, primary care, specialists. States already struggle in this area and they worry about whether or not they can meet the increased demand."

And then there's the age old adage that 'he who pays the piper calls the tune.'

"States have experience that the larger the federal share is in paying for a program, the more over time the federal government sets the rules and is more directive over how the dollars will be spent," Weil says. "So even with a large federal share, which sounds good, there's concern about how that will play out with regard to state flexibility in running their programs."

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