The Cost of Health Care Reform May Be Less Than States Fear
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The Fiscal Times
May 27, 2010

As states complain about the burden of expanding health care to millions of poor Americans under the new federal health-care law,  a study released Wednesday suggests their claims may be overstated. The issue is the cost of expanding Medicaid, the federal-state health program for the poor, children and the disabled, and the report from the Kaiser Commission on Medicaid and the Uninsured says states are likely to reap huge benefits for relatively little cost, and may even end up in the black.

Beginning in 2014, the health-care law expands Medicaid eligibility to adults with incomes of less than 133 percent of the federal poverty level, this year $14,404 for an individual. That's expected to add 15.9 million people  to the Medicaid ranks by 2019, at a cost of $465 billion, though only $21 billion would come from states. People with incomes between 133 percent and 400 percent of the poverty line – including some current Medicaid recipients – would enter state-run insurance exchanges starting in 2014, while those above that level generally would get coverage from their employers.

This  would reduce by 45 percent the number of uninsured adults below the 133 percent threshold, while states' Medicaid spending would increase only 1.4 percent as a result, the study found. The federal government would absorb most of the cost of the increase—95 percent. (Those numbers are based on assumptions about participation similar to those from the Congressional Budget Office for 2014 to 2019, the first five years of the new plan.)

The federal government would provide full funding for all newly eligible Medicaid recipients between 2014 and 2016, an amount that would decrease to 90 percent by 2020. As a result, the federal share of Medicaid spending would increase to 62 percent, from 57 percent now, the study says.

More Medicaid coverage means that states would end up footing the bill less often for uncompensated health care costs. "There will be large increases in coverage and federal funding in exchange for a small increase in state spending," wrote the authors, John Holahan and Irene Headen of the Urban Institute, a Washington think tank. "States with low coverage levels and high uninsured rates will see the largest increase in coverage and federal funding."

States with the weakest Medicaid programs would face the greatest spending increases— Oklahoma, Mississippi and Arkansas would see Medicaid costs increase between 4 and 5 percent. But a larger share of their overall costs would be paid by the federal government. States like New York, which already provide broad benefits under Medicaid, would see almost no increase in their spending. Maine, Massachusetts, Vermont and Hawaii are expected to see costs fall slightly. Still, the states face a new administrative burden and unpredictable effects  of the new law on managed care, primary care, hospitals and other parts of the health-care system. That, along with the cost are a big part of state-government anger over the new law. At least 14 states have filed suit against the federal  government to have the law declared unconstitutional.

Alan Weil, executive director of the National Academy for State Health Policy, said states are rightly concerned about whether they can respond to some of the demands of the new law, but he praised the Kaiser report and suggested that, if anything, its savings estimates are conservative. He pointed out that the new law doesn't fundamentally alter the health-care balance between states and the federal government, in which the states are already groaning under huge health-care costs in tight budget times.

"Given the relatively small incremental cost increase for states," he said, "ultimately the primary state reaction to these estimates is based on their feelings about the baseline, not about changes from baseline."

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Related Links:

Study of health-care law rebuts state protests on Medicaid costs- Washington Post
Feds Will Pay Much Of Medicaid Expansion Costs For States, Study Finds – Kaiser Health News
State spokeswoman says study 'erred' –Dallas Morning News 
Report pegs state's cost of health care reform at over $205 million – Milwaukee Journal Sentinel
Medicaid expansion could add 1.4 million in Florida, Kaiser report says – Florida Sun-Sentinel