Study sees few state winners in ACA Medicaid expansion

Only states such as New York, with its generous Medicaid eligibility, would save money under the expansion, says a report from a conservative think tank.

By — Posted March 22, 2013

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Only a handful of states stand to benefit from expanding Medicaid starting in 2014, with one Northeast state emerging as the clear winner, according to an analysis from the conservative Heritage Foundation in Washington.

The analysis projected what the cost impact would be if all 50 states and the District of Columbia expanded their program eligibility up to an effective rate of 138% of poverty under the Affordable Care Act. Supporters of the ACA assume that expansion states will be able to afford to cut payments to hospitals and other health care professionals for uncompensated care as more individuals obtain Medicaid coverage, said Drew Gonshorowski, a policy analyst with the foundation and the author of the analysis.

The caveat is that not all states will experience such levels of savings under expansion, he said. In his estimation, at least 40 will see their added costs exceed any savings once full federal assistance for expanding Medicaid starts ratcheting down after the first three years of expansion. “From there, state costs [will] continue to climb, dwarfing any projected savings,” he stated.

Only 10 states that already maintain generous Medicaid eligibility levels are expected to accrue any net savings at all under the analysis. New York, a high-population state with a particularly expansive Medicaid program, would save a projected $33.8 billion through 2022, “nearly matching the spending increases from 40 other states,” he said. The analysis estimates that these net “payer” states could experience total cost increases of up to nearly $38 billion.

New York comes out ahead because it already has expanded its Medicaid program, offering comprehensive Medicaid adult benefits to both parents and childless adults up to at least 100% of the federal poverty level, said Deborah Bachrach, New York’s former Medicaid director and special counsel in the health care practice at Manatt, Phelps & Phillips LLP in New York. Beginning in 2014, the state will receive enhanced federal matching funds for childless adults, since they are a population that qualifies as “newly eligible” under the ACA Medicaid expansion.

“In essence, the federal government is buying out some costs New York has traditionally incurred,” she said.

Doubts over charity care bills

The nine other states with net savings potential in the Heritage study are projected to see more than $14 billion in total savings, $6 billion of which would apply solely to Massachusetts, another state with a generous Medicaid program. “Of course, even these savings are highly speculative,” Gonshorowski said, as they assume that state uncompensated care costs will decrease after the expansion. Analyses of other states such as Maine, for example, show that these costs would continue to grow, he said.

Any state reductions to uncompensated care payment rates to hospitals and others would require action from state lawmakers. “Assuming that we can get any at the state level due to various political dynamics is a tough sell,” Gonshorowski said. Hospitals already are facing billions of dollars in federal cuts to their disproportionate share hospital payments, agreed to in return for the promise of more insured individuals under the ACA coverage provisions.

Bachrach said states might reduce uncompensated care costs over time as people secure coverage through the health insurance exchanges or Medicaid, but that elimination of all uncompensated care funding was unlikely.

Other studies have concluded that the net gains to the states from expanding Medicaid are higher than what Heritage estimates. A study issued by the Kaiser Commission on Medicaid and the Uninsured and the Urban Institute in November 2012, for example, determined that all states are likely to experience net savings of $10 billion over 10 years if they all fully expand Medicaid, compared with enacting the ACA without expansion of the program.

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