Less than expected

New estimates on the healthcare law from the Congressional Budget Office gave hospitals more ammunition in their fight for states to expand their Medicaid programs—and more concerns that what they bargained for isn't what they're going to get.

The Medicaid expansion battle—or, rather, 50 individual battles—began last month after the U.S. Supreme Court decided states could choose whether to expand eligibility for Medicaid under the Patient Protection and Affordable Care Act. Last week, the nonpartisan CBO released a new estimate to account for the high court's June 28 decision. Although the numbers are only estimates, they're still troublesome for already worried healthcare providers that face about $22 billion in disproportionate-share hospital payment cuts, which they agreed to because they counted on a much lower uninsured population.

The CBO analysts projected that about 6 million fewer people will have Medicaid coverage in 2022 than previously estimated under the ACA, which means the federal government will spend roughly $289 billion less for Medicaid and the Children's Health Insurance Program from 2012 to 2022. During that same time, 3 million more people are expected to find coverage in the state insurance exchanges, which will increase the federal government's cost for exchange subsidies by $210 billion. The CBO also expects an additional 3 million people will be uninsured, which will cause individuals and businesses to pay about $5 billion more in penalties.

Those calculations brought the revised, 11-year cost of the Affordable Care Act down to $1.168 trillion, or about $84 billion less than the $1.2 trillion the office estimated this past March. Separately, the CBO concluded that repealing the law would add about $109 billion to the federal deficit over the next decade. The report also predicted that about 29 million nonelderly people will be uninsured by 2019, which is more than the 26 million the CBO predicted in March 2012 and the 23 million it estimated in March 2010.

“When the law was passed, the idea was there would be less DSH money, but more people will be covered and we won't need as much DSH money,” said Dr. Bruce Siegel, president and CEO of the National Association of Public Hospitals and Health Systems. “Now, half of that is gone—the coverage is expected to be less.”

And while the CBO numbers are not a reality, the figures are “already coloring the conversation,” Siegel said, adding that he's especially worried about Florida, Louisiana and Texas, states in which the governors have said they won't expand Medicaid and where many uninsured people rely on the safety net. Siegel said his organization gives the numbers “a lot of weight” because the CBO report was the first independent assessment of the future of Medicaid expansion.

He cited the CBO's predictions that many states either won't expand their Medicaid programs or won't expand them for years—along with the finding that fewer people will be covered under Medicaid—as his greatest concerns.

Some Washington policy experts—including Douglas Holtz-Eakin, a former CBO director—bemoaned the uncertainty of the estimates, which the CBO itself acknowledged. Analysts from both the CBO and the Joint Committee on Taxation did not use state predictions, but instead projected “approximate shares of the affected population” who live in states that fit into broad categories ranging from no expansion to an expansion that the healthcare law envisioned.

The analysts estimate that in 2022 about one-third of the potential newly eligible population will live in states that decide to extend coverage fully for up to 138% of the federal poverty level, while about one-half of the potential newly eligible population will live in states that partially extend Medicaid coverage to an income threshold less than that level. That leaves the remaining one-sixth living in states that will not extend Medicaid coverage at all in the next 10 years. And the CBO and Joint Committee on Taxation predict that coverage expansions will unfold in such a way that one-third of people who are newly eligible will reside in states that expand in 2014. Another third, they estimate, will live in states that wait until 2015, and the remaining third will reside in states that delay expansion longer.

Meanwhile, DSH payments are among the myriad questions related to Medicaid expansion that hospitals have for the Obama administration. A day before the CBO released its report, several hospital groups met privately with HHS and CMS officials, including HHS Secretary Kathleen Sebelius and CMS acting Administrator Marilyn Tavenner, to discuss issues about the Medicaid expansion.

Siegel attended and said HHS convened the meeting to keep “lines of communication open” among stakeholders. Richard Umbdenstock, president and CEO of the American Hospital Association, and Teri Fontenot, president and CEO of Baton Rouge, La.-based Woman's Hospital who chairs the AHA board, also attended. Fontenot was unavailable for an interview, but Tom Nickels, the AHA's senior vice president for federal relations—who did not attend—said HHS is engaging a variety of stakeholders to lobby state legislators to expand Medicaid.

“That was the whole purpose,” Nickels said. “That is certainly something our members would like to see happen.” In a brief notice to its members, the AHA said the July 23 meeting covered “many yet-to-be answered questions concerning federal and state negotiations, advocacy at the state level, the connection between coverage and payment reductions, and how other issues in the ACA may affect the expansion.”

HHS has already answered one big question for providers. After the Supreme Court ruling, many wondered whether states would be able to miss the law's 2014 deadline for expanding Medicaid coverage and still receive the higher federal funding match promised to states that comply. “The answer was yes,” Nickels said.

But questions surrounding DSH payments are likely to remain unanswered for some time. “I think again this is primarily a post-election decisionmaking process with the states.” Specifically, hospitals want to know what will happen to DSH payments to providers in states that decide not to expand their Medicaid programs.

Some policy experts and advocates took a more optimistic view last week. Ron Pollack, executive director of patient-advocacy group Families USA, noted that every state has chosen to participate in Medicaid and the Children's Health Insurance Program even though they receive about 57 cents for every dollar from the federal government for Medicaid and about 70 cents for CHIP. The reform law promises the federal government will cover 100% of the costs of new enrollees through 2016 and at least 90% after that. “If all the states decided to pick it up at 57% and 70%, why would they be stupid to not accept the money?” Pollack said. “It's a very simple decision.”

Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities, said there are a lot of bad arguments why states should not expand their Medicaid programs. Chief among those is the concern that the federal government might cut back on their financial commitment in years to come.

“I don't think that will happen, but clearly it's a possibility,” Van de Water said. “Were it not for that small amount of uncertainty, I think that states would want to take it up because it's a very good deal for them and their residents for getting broader coverage at minimal costs to the state.”

The Medicaid push comes amid a contentious congressional campaign season in which provider groups have sought to increase their profiles with health policy leaders in both parties.

For instance, the largest hospital political action committee, AHA PAC, has collected $3,140,010 for the 2012 campaign season. When added to unspent funds from the previous campaign cycle, AHA PAC had a record $3,567,914 political war chest heading into the final four months of the election, according to the Center for Responsive Politics.

In comparison, the PAC for the American Health Care Association, a nursing home trade group, had collected $1,658,281 and the Federation of American Hospitals PAC took in $578,215.

Those political funds are flowing freely to influential health leaders, such as Sen. Orrin Hatch (R-Utah), the ranking member on the Finance Committee, who garnered $10,000 from AHA PAC. Hatch is in line to take over the key healthcare panel next year if Republicans win control of the Senate and he is a staunch opponent of the Affordable Care Act.

However, that has not led him to join the calls of some conservatives for states to opt out of expanding their Medicaid programs. “That's a decision states are going to have to make for themselves,” Hatch said in a brief July 9 interview.

Other congressional Republican health policy leaders who have received substantial provider contributions also have deferred to state leaders to decide whether to undertake a Medicaid expansion that they have roundly criticized. For instance, Rep. Fred Upton (R-Mich.), chairman of the powerful House Energy and Commerce Committee, was given $5,000 this cycle and declined to urge any state to reject the Medicaid expansion when Modern Healthcare asked him about it.

Democrats have similarly declined to urge states to expand after the court ruling. That includes Sen. Max Baucus (D-Mont.) the primary author of the healthcare overhaul and the recipient of $2,000 from AHA PAC. “Basically, Congress enacted provisions which expanded Medicaid coverage,” Baucus told reporters after the healthcare law ruling. “And if states won't opt to participate, that's their prerogative.”

TAKEAWAY: New CBO estimates on the reform law heightened hospitals' concerns about how many Americans will remain uninsured.