Study details economic benefits of state Medicaid expansion

Amid studies focusing on costs, an analysis in Michigan underscores net financial benefits.

By — Posted Oct. 29, 2012

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Michigan is one of several states that has yet to decide which path it will take on expanding Medicaid eligibility to an effective rate of 138% of the federal poverty level starting in 2014. A new report concludes that if the state decides to proceed with expansion, it could save hundreds of millions over a decade even while increasing enrollment in the program by more than 600,000 people under this Affordable Care Act provision.

The report, prepared by the nonprofit Center for Healthcare Research & Transformation and several economists at the University of Michigan, analyzed three possible scenarios given a Michigan decision to go ahead with the full Medicaid expansion — low, moderate or high enrollment of mostly new eligibles in 2014. The center represents a partnership between the university and Blue Cross Blue Shield of Michigan.

Under the most likely scenario of moderate enrollment gains, the state could save about $983 million over 10 years, taking into account the federal government’s commitment to pay the full amount of a state’s additional coverage costs for the first three years of the expansion. As an economic stimulus for states, the expansion “looks to be unprecedented,” said internist Jack Billi, MD, associate vice president for medical affairs at the University of Michigan and CHRT’s board chair.

Even after 2016, at least 90% of the costs of the expansion will continue to be covered by the federal government. This is a vast improvement over the 33% match the state currently has to kick in for Medicaid, Dr. Billi said.

The additional dollars the federal match rate will bring into the state would be spent in hospitals, physician’s offices and pharmacies, meaning it would be invested locally and turned over in the state’s economy several times, he said. Michigan also spends a significant amount of money on other state health programs that either would be reduced or eliminated when Medicaid expands, he said.

“This is before we get to the fact that what we’re doing with this money is actually taking care of the health of underserved and often disenfranchised populations,” Dr. Billi said.

Anticipating moderate enrollment, expanding Medicaid would bring at least 619,000 new people into the program by 2020, many of whom don’t have insurance. The report projected that the total number of uninsured in the state would drop from 1.1 million in 2010 to 290,000 in 2020 if Medicaid eligibility were expanded in Michigan.

As of this article’s deadline, the state had not indicated whether it would choose to expand Medicaid. Michigan health officials declined to comment on the report’s findings.

Some states focus on up-front costs

Arkansas, in conducting its own analysis of the Medicaid expansion this summer, estimated that the state could save $360 million from fiscal years 2014-25 based on a “highwater prediction of participation,” said Andrew Allison, the Arkansas Medicaid director. Allison is also president of the National Assn. of Medicaid Directors. Other studies, however, run counter to these predictions of net savings to the states.

One report from the conservative Washington-based Heritage Foundation concluded that states actually would incur costs numbering in the billions under certain scenarios if they expanded their Medicaid programs in 2014. Substantial cost increases for individual states such as Indiana and Mississippi also were projected in analyses prepared by Milliman Inc.

A number of states led by Republican governors, including Florida, Georgia, Mississippi, South Carolina and Texas, have written off the Medicaid expansion as too expensive. The chance to opt out became available to states after the U.S. Supreme Court in June ruled that states can’t be forced to forfeit all federal Medicaid funding if they don’t expand their Medicaid eligibility.

Dr. Billi said some analyses may be focusing just on the economic impact to states from eventually paying up to 10% of the new Medicaid costs, instead of looking at the net economic impact on state budgets.

Judith Solomon, vice president for health policy with the liberal Washington-based Center on Budget and Policy Priorities, offered up additional reasons why various reports were yielding different results. Some of them are assuming that all potential new eligibles are going to participate in a state’s program starting on day one of the expansion, even though no expanding program ever has achieved this. Other reports, in estimating the per-capita costs of the expansion, are using people with disabilities as benchmarks. “That’s much too high for a population that in the aggregate is going to be healthy,” she said, noting that most new eligibles are expected to be adults without children.

Many of these estimates include those individuals already eligible for Medicaid who may enroll in the program due to publicity surrounding ACA coverage expansions — regardless of whether a state decides to expand its program, she said. For the states, these populations indeed will be more expensive to cover, because unlike those who are newly eligible, “they’re not going to get the higher match,” she said.

The center’s own analysis concluded that states would incur relatively modest costs from expanding Medicaid, costs that partially would be offset “by savings in uncompensated care and other state-funded services for the uninsured.”

Marianne Udow-Phillips, director at the Center for Healthcare Research & Transformation in Michigan, said that just 10% of the 619,000 state residents anticipated to enroll in Medicaid under moderate projections were identified as those currently eligible for Medicaid but not signed up. Most of this population “are entirely new eligibles,” she said.

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How one state expects to save $1 billion by expanding Medicaid

The nonprofit Center for Healthcare Research & Transformation projected the net costs of Michigan expanding Medicaid under the health system reform law. In all three scenarios of enrollment uptake assumed by the researchers, the state would reduce both overall spending and the numbers of uninsured residents. Figures represent the state’s 10-year cost savings, in millions, under moderate projections for the enrollment of newly Medicaid-eligible residents in 2014, the expansion’s first year.

$1,861 million: Reduction in non-Medicaid mental health spending

$504 million: Reduction in prisoner inpatient medical spending

$444 million: Increase in tax revenues from health facilities and professionals

$395 million: Savings from elimination of Adult Benefit Waiver program

$23 million: Reduction in state employee health spending

$3,228 million: Total state budget savings

$2,245 million: Gross state expansion costs

$983 million: Net state budget savings

Note: Savings amounts do not add up to total savings due to rounding.

Source: “The ACA’s Medicaid Expansion: Michigan Impact,” Center for Healthcare Research & Transformation, October (link)

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External links

“How Health Reform’s Medicaid Expansion Will Impact State Budgets,” Center on Budget and Policy Priorities, July 25 (link)

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