Healthcare Business News

States see increased costs in Medicaid expansion: survey

By Rich Daly
Posted: August 1, 2012 - 2:30 pm ET

Most states expect the Medicaid eligibility expansion to increase their costs, even during the three years that the federal government provides a 100% reimbursement for the expanded enrollment, a government survey found.

Ancillary activities to the Medicaid expansion included in the 2010 federal healthcare overhaul that are expected to increase costs for most states include the need to upgrade information technology for eligibility determinations, according to a Government Accountability Office survey of state budget directors released Wednesday.

Despite the federal government covering 100% of the costs for newly eligible enrollees in 2014-2016, 37 states reported the required IT eligibility and enrollment upgrades will increase their costs from 2012-2014 and 29 states expect increased costs from 2015-2017.

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Other activities required under the Medicaid eligibility expansion that states see as cost drivers, according to the GAO survey, include those related to managing the Medicaid enrollment and enrolling previously eligible but unenrolled beneficiaries.

The expectation of increased costs among the 42 states that responded to the GAO survey may help explain why most states have yet to decide whether they will expand their programs' eligibility, as called for by the Patient Protection and Affordable Care Act. Supporters of the law have criticized states for hesitating to undertake the Medicaid expansion because of their perception that it would carry no state costs during the early years.

“Many outside observers have treated the expansion of Medicaid as a foregone conclusion, as if states couldn't possibly turn down so much supposedly 'free money,'” Sen. Charles Grassley (R-Iowa), who requested the GAO review, said in a written statement to Modern Healthcare. “But the evidence from CBO and GAO is crystal clear. When the federal government is involved, there's no such thing as a free lunch. State officials know this. States absolutely can turn down the option to expand, and every state faces a difficult decision in how it chooses to move forward. Expanding Medicaid is not the easy solution proponents would like it to be.”

Expected cost savings from other initiatives allowed by the law may make states more likely to undertake them. For instance, states were much more likely to expect savings from shifting Medicaid enrollees into health insurance exchanges that will begin operating in 2014, according to the GAO survey.

Other survey findings highlighted the primacy of cost concerns in driving state decisions on the Medicaid expansion. For example, 27 of the 42 responding state representatives described the state's share of their Medicaid program's costs as “very challenging.”

Most state budget directors also sought more guidance related to the possible Medicaid expansion than they have received so far from the CMS. Officials at the CMS told GAO researchers in an associated report (PDF) that they were working to provide such expanded guidance.

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