A state-by-state estimate showing that the federal government is likely to pay for most of the Medicaid costs expected under the reform law may offer only some consolation as cash-strapped states and providers grapple with more immediate budget constraints and the safety net insurer’s upcoming expansion.
Fed funds on the way ...
... but states worried about expansion, how to pay
The federal government would bear roughly 93% to 95% of the costs for Medicaid during the expansion through 2019, according to new research by the Kaiser Commission on Medicaid and the Uninsured, which released the figures May 26.
The biggest gains in coverage and federal spending will go to states with low Medicaid coverage of adults, the study said. Meanwhile, states with more extensive coverage—Hawaii, Maine, Massachusetts and Vermont—could see state spending drop as federal spending rises after 2014, depending on how many newly eligible seek coverage.
States pay none of the cost of newly eligible enrollees through 2016 under reform provisions. Federal financing for those enrollees will gradually drop to 90% in 2020, where it will remain. That amounts to an estimated $443.5 billion to $532 billion during the six years.
Despite the lopsided financing and the significant increase in coverage, states nonetheless have concerns about how to pay for expansion, meet increased demand, and how employers and the uninsured will respond to subsidized care available under reform through Medicaid and private insurance exchanges, said Alan Weil, executive director of the National Academy for State Health Policy. He was speaking at the Washington conference where the estimates were released.
“And 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, which is a lot more than they have to put in, or whether or not they feel they can afford the small, relatively small, amount that they’ll have to put in,” Weil said.
In Minnesota, the question of whether to expand Medicaid and enrollment ahead of 2014 stands to become a campaign issue in November’s gubernatorial election, said Lawrence Massa, president and CEO of the Minnesota Hospital Association. The trade group lobbied unsuccessfully for the state to take advantage of a reform provision that allows for expanded Medicaid eligibility by then.
More generous federal financing for the newly enrolled would not take effect until 2014, but hospitals would receive more reimbursement than otherwise after Minnesota significantly cut spending for wholly state-subsidized insurance for adults without children with incomes below 75% of federal poverty guidelines (about $8,100 for an individual), Massa said. Until 2014, the federal government would continue to finance 50% of the state’s Medicaid spending, which is the historical rate.
Outgoing Gov. Tim Pawlenty vetoed a bill to adopt Medicaid expansion ahead of schedule, but agreed to a compromise that gives the governor authority to do so through Jan. 15, 2011. Massa said early Medicaid expansion would add $188 million to Minnesota’s budget over three years but would yield $1.4 billion in federal funding.
Mike Harristhal, vice president for public policy and strategy for Hennepin County Medical Center, Minneapolis, said the 465-bed hospital would fare better under Medicaid than state spending for low-income adults without children, which was slashed to $129 million per year, including a $30 million uncompensated-care pool, from $381 million.
The Hennepin County hospital, one of four providers that agreed to manage care for such patients, stands to lose $96 million on the group; previously the hospital lost $5 million. “We were losing money before,” he said. “We’re now going to be losing a ton of money.”
Even as policy experts touted the Kaiser Commission figures as among the first to estimate the cost to each state of Medicaid’s expansion, set to begin in 2014, they acknowledged cost-estimating difficulties.
The accelerated Medicaid expansion being debated in Minnesota was not included in the analysis. Nor, importantly, were estimates of how expanded insurance would reduce costs of state uncompensated-care subsidies, said John Holahan, director of the health policy center at the Urban Institute and one of two researchers who authored the study. “The increases in state spending are pretty small compared to the increase in coverage and relative to what states would have spent if there had been no reform,” Holahan said.
Holahan said that state and local governments in 2008 spent $17.2 billion to subsidize uncompensated care, citing prior research. He estimated such subsidies could be curbed by $70 billion to $80 billion between 2014 and 2019 by health reform provisions that increase insurance coverage. That figure, which he described as a rough estimate in an interview, offsets states’ projected increased Medicaid costs, Holahan said.
Those costs total $21.1 billion during the same six-year period, an increase of 1.4% over what states would have spent without reform, according to the more conservative of two projections the researchers developed.
Under that estimate, the federal government would foot 95.4% of the cost should 57% of uninsured and newly eligible adults enroll for Medicaid once rules change.
The second estimate, resulting in the 93% figure, assumes three-quarters of uninsured and newly eligible enrollees will seek Medicaid coverage, plus states would see more demand from those who qualified before reform. State spending would climb by 2.9%, or $43 billion, as Medicaid rolls expand by 39%.
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