Medicaid Expansion: Saved From the Cliff or Into the Chasm?

 Full Report

Now is the time for the Michigan Legislature to follow Gov. Rick Snyder’s lead and accept Michigan’s share of federal funds—about $2 billion a year—to provide comprehensive healthcare coverage to an estimated 400,000 to 600,000 uninsured Michigan residents and, at the same time, save state dollars. The public supports accepting federal funds to expand coverage, the provider community supports expanded coverage, and primary care doctors have the capacity and willingness to serve more patients, including those newly eligible under Medicaid.

In his special health and wellness message, the governor said: “Government and the private sector can and should empower Michiganders with the tools necessary to access quality health care and live a healthy lifestyle. We should act expeditiously and with compassion.”

The cost-effective Medicaid expansion presents the perfect opportunity to provide the tools low-income individuals and parents need to manage their healthcare needs and obtain needed healthcare. Everyone should be able to go to the doctor when they are sick, obtain the medications they need to restore health or manage chronic conditions, or obtain the mental health services they need and not be denied or placed on a waiting list. Thousands of very low-income working individuals and parents do not currently have access to healthcare coverage. Michigan residents should have the opportunity to thrive, not just survive, and not be saddled with medical debt.

Polling results recently released by the American Cancer Society Cancer Action Network show that Michigan voters support the expansion of coverage with the use of available federal funds by a 40-point margin. Survey results released by the Center for Healthcare Research and Transformation show that “81 percent of Michigan primary care physicians anticipate being able to accommodate patients who become newly insured in 2014. Of those physicians, nearly all indicated that they would accept newly eligible Medicaid patients.”

ACA PROVIDES GREAT OPPORTUNITY

Michigan policymakers have a rare opportunity to save state funds while improving the health of Michigan’s population through the cost-effective expansion of Medicaid. Increasing Medicaid eligibility would provide health and financial security and access to medical care, as well as comprehensive mental health services for an estimated 400,000 to 600,000 uninsured Michigan residents, resulting in a win-win situation—for the state and its low-income residents.

The Medicaid expansion can be financed without the investment of new state funds. The federal government will pay 100% of the cost for the first three years, resulting in significant General Fund savings to the state for the first decade. State funds currently spent on healthcare services for low-income individuals who would become eligible for Medicaid could be redirected to serve as the state’s Medicaid match when required in the future. Overall, modest savings are projected to continue, from 2020 onward, with the very favorable federal matching rate of 90%. An estimated $2 billion per year in new federal revenue would not only pay for needed healthcare services but would also provide significant economic stimulus.

SUPREME COURT RULING

The ACA, upheld by the Supreme Court in June 2012, requires states to expand their Medicaid programs in 2014 to low-income parents and for the first time to nonelderly childless individuals with incomes up to 133% of the federal poverty level (about $15,000 for an individual). Children are already covered up to 200% of the FPL. The Supreme Court ruled that the penalty included in the Act for not complying with the Medicaid expansion, the withholding of all federal funds for the Medicaid program, was too harsh and unduly coercive. The remedy put forth by the Court was elimination of the penalty for not expanding Medicaid. However, the portion of the law mandating the Medicaid expansion was not changed by the ruling; it is the law of the land.

POSITIVE FISCAL IMPACT OF EXPANDED COVERAGE IN MICHIGAN

Shortly after the Supreme Court ruling, both the House and Senate Fiscal Agencies released information documenting the fiscal benefits to the state for proceeding with the Medicaid expansion. The House Fiscal Agency memorandum concluded that the state would experience net savings in the first six years (2014–2019), and the expansion would be “roughly cost-neutral in the subsequent years” with small savings projected in the seventh through 10th years. The preliminary state savings estimates include more than $200 million in the first year and $1.1 billion over the 10-year period 2014–2023. New federal revenue to the state would range from $1.9 billion to $2.2 billion per year over the 10year period, for a total of $20.5 billion. This report presents an unprecedented long-range analysis of the impact of the Medicaid expansion.

The Senate Fiscal Agency memorandum similarly concluded that the Medicaid expansion would result in state General Fund savings of at least $200 million per year through the year 2017 when the state would be required to provide a 5% match. The memorandum asserts that the Medicaid expansion is “more of a policy issue than a fiscal issue.”

The savings projected by both fiscal agencies result from current state spending on limited healthcare services for individuals not currently Medicaid-eligible, but who would become eligible under the expansion. Their care would be financed by the federal government at 100% for the first three years, phasing down to 90% by 2020. Key programs where savings would occur are community mental health services for those not eligible for Medicaid and the Adult Benefits Waiver, which provides ambulatory benefits to a very low-income (34% FPL) and limited population. There may be additional state and local savings in other program areas, such a public health or corrections if the Medicaid expansion is implemented.

In October 2012, the Center for Healthcare Research and Transformation released a Michigan impact analysis of the Medicaid expansion and concluded “The total impact of the Medicaid expansion to the state of Michigan over 10 years is a net savings of approximately $1 billion.” CHRT’s fiscal impact is nearly identical to that concluded by the House Fiscal Agency.

The federal Centers for Medicare and Medicaid Services have indicated that there is no deadline for states to determine whether to expand their Medicaid programs. However, the federal matching rates are set in the law—100% federal funding 2014–2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% from 2020 onward. States that choose to delay the Medicaid expansion will miss out on 100% federal funding in the early years.

To provide a perspective of what the $200 million in projected savings could buy in Medicaid healthcare services for the newly eligible population, the graphic to the left includes the federal match rates for 2017 and 2020 as specified in the law.

Both the House and Senate Fiscal Agencies estimate a total cost of about $2 billion to cover the expanded population of about 400,000 in 2014. The House Fiscal Agency assumed a cost of $5,000 per new enrollee in 2014, which is an average cost for current full Medicaid benefits. Therefore, the state could readily expand Medicaid eligibility to 133% FPL in 2014, provide full benefits, and still experience significant General Fund savings. Because the current programs from which funds can be redirected are also projected to grow, the cost of the expansion in the seventh through 10th years, is projected to be “roughly cost neutral.”

FEDERAL FISCAL IMPACT OF EXPANDED COVERAGE

Because the law as initially enacted was paid for with increased revenue and spending reductions, the ACA was projected to result in a federal budget deficit reduction of $210 billion over the period 2012-2021. The Medicaid expansion will not add to the federal deficit. The federal cost of the Medicaid expansion was lowered by the Congressional Budget Office, following the Supreme Court decision, based on the assumption some states, because there is no penalty, would decline to expand their Medicaid programs.

Because the ACA assumes a dramatic reduction in the number of uninsured, in part due to the Medicaid expansion, the law includes provisions to reduce payments to hospitals for treating uninsured patients. These reduced hospital payments will occur regardless of whether a state expands Medicaid and will place an extreme stress on hospitals if they must continue providing high amounts of uncompensated care.

COVERAGE CHASM WITHOUT EXPANDED COVERAGE

Because the ACA expands Medicaid coverage for those with incomes up to 133% FPL, there is no other option in the law to provide affordable coverage to those with incomes below 100% FPL. Premium and cost-sharing subsidies, on a sliding scale for those with incomes between 100% – 400% FPL, will be available through the new healthcare marketplace, called the health insurance exchange.

For those with incomes between the state’s Medicaid eligibility level for childless adults and parents, both less than 50% FPL, there will be no opportunity for affordable coverage if the state chooses not to implement the Medicaid expansion. A coverage chasm will result. (See graphic.)

An Urban Institute report, released in August 2012, estimates the number of uninsured parents in Michigan with incomes below 100% FPL at 48,000, and the number of childless adults at 382,000. More than 400,000 Michigan residents could be left without an opportunity for affordable coverage, while those with higher incomes would have access to federal subsidies for their premiums and cost sharing.

POSITIVE HEALTH IMPACTS OF EXPANDED COVERAGE

The Medicaid program is designed to meet the needs of low-income populations who often have poorer health statuses and greater healthcare needs than the general population. The benefits are comprehensive to meet the healthcare needs with limited out-of-pocket expense. Comprehensive behavioral health benefits, including substance abuse treatment and case management, would become available to this low-income population who often report fair or poor behavioral health status. The 2011 Michigan Behavioral Risk Factor Survey found that of the adults who reported “poor mental health,” 25% had household incomes of less than $20,000. To provide optimum health outcomes, it is essential that the state provide the full range of Medicaid benefits to the new population. While a lesser benefit package is allowed under the ACA, it makes little sense to force individuals to go without needed care or be forced to seek care in the emergency room when benefits are not provided, but care is needed.

In addition to better health outcomes if full Medicaid benefits are provided, savings will accrue to those who purchase private coverage, when hospitals no longer pass uncompensated care costs, sometimes called the “hidden tax” on to them, a benefit to all Michiganians. The state will also benefit when uncompensated care costs are no longer passed on in the form of higher premium costs for state employees.

Recent studies have documented the positive health outcomes for populations enrolled in Medicaid. A study by Harvard researchers published in the New England Journal of Medicine found that in three states that voluntarily expanded Medicaid eligibility to nondisabled, low-income adults without children, fewer died compared to neighboring states that did not expand coverage. The study also found that those who enrolled in Medicaid reported better overall health status and fewer delays in seeking care because of cost concerns.

The landmark Oregon Health Study has also documented the benefits of enrollment in Medicaid. In a survey conducted one year after individuals were randomly selected from a waiting list to fill 10,000 slots in their Medicaid program for adults, researchers found that “enrollment in Medicaid substantially increases health care use, reduces financial strain, and improves self-reported health and well-being.”

In its report, CHRT noted “First and foremost, the public and policymakers will want to consider the health benefits of expanding Medicaid. A substantial body of research confirms what would seem to be common sense: not having health insurance is bad for your health. This work is summarized in a 2009 study by the Institute of Medicine.”

POSITIVE WORKFORCE IMPACTS OF EXPANDED COVERAGE

Both low-wage workers and their employers will experience significant benefits from the Medicaid expansion through a healthier workforce. In his health message, the governor called on employers to implement health and wellness programs to improve the health and productivity of the workforce. While important, it is access to medical care and preventive services that are the key components to improving workforce health and productivity. In addition, with employer-sponsored coverage continuing to decline, the expansion of Medicaid to those with incomes up to 133% FPL can fill a growing void.

In its report, The Uninsured in Michigan, the Department of Community Health found that Michigan’s low-income, nonelderly adults with incomes below 200% FPL, represented 30% of underage 65 adults but 53% of the uninsured. In addition, the study found that the majority of the uninsured, 51%, are in working households. The Medicaid expansion would greatly improve the lives of low-income working families and make Michigan a more competitive location for businesses.

UNANTICIPATED BUSINESS PENALTIES

The ACA mandates the Medicaid expansion up to 133% FPL. However, low-wage employees, not offered affordable employer coverage, will be able to seek coverage through the Exchange which will become operation in January 2014. Those with incomes above 100% FPL will qualify for premium tax credits and cost-sharing subsidies. Employers will be subject to unanticipated penalties for those with incomes between 100% and 133% FPL who obtain coverage and subsidies through the Exchange who had been expected under the law to receive coverage through Medicaid.

CONCLUSION

The ACA Medicaid expansion provides an unprecedented opportunity for Michigan to improve the health, both physical and mental, and health security of Michigan’s low-income residents. In 2011, the Legislature passed nearly $2 billion in tax cuts for business, shifting most of the burden to individuals, and disproportionately to lower-income individuals and families.

The ACA provides the opportunity to invest in Michigan residents to provide health security to lowincome parents and individuals who may have lost their jobs and healthcare coverage or who may be working at jobs that do not provide affordable coverage or they do not qualify for coverage. This critical investment can be accomplished with no new state funds.

In addition, refusing to accept the federal funds available to pay for the expansion will increase Michigan’s level of being a “donor state,” using Michigan taxpayer funds to expand Medicaid in other states. This was a key factor in the Arizona governor’s decision to expand Medicaid “The expansion of Medicaid coverage for low-income adults provides an opportunity to reinvest Arizonans’ federal tax dollars here at home rather than in competing states.”

The Legislature should act expeditiously and provide the leadership and tools necessary to improve the health status of Michigan’s low-income residents, promote economic development and activity with no new state funds investment by:

  • expanding Medicaid to 133% FPL, effective Jan. 1, 2014, with the full package of current Medicaid benefits to the newly eligible population;
  • taking full advantage of the 100% federal funding, available in calendar years 2014, 2015, 2016 for the expanded population while saving state funds currently spent for limited services for this population;
  • keeping Michigan taxpayer funds in Michigan to help its residents;
  • appropriating the federal funds needed to support the expansion.

—–  SOURCES  —–

 1.   Public Support Poll by American Cancer Society Cancer Action Network: http://www.acscan.org/content/media-center/medicaid-poll/

 2.   Provider Community Support Letter: http://www.mha.org/mha/weeklymailing/2013/012813/joint_medicaid_expansion_letter.pdf

 3.   Primary Care Doctor Survey results:  http://www.chrt.org/public-policy/policy-briefs/primary-care-capacity-and-health-reform-is-michigan-ready/

 4.   Governor’s health message:  http://www.michigan.gov/snyder/0,4668,7-277–262254–,00.html

 5.     House Fiscal Agency memorandum:  http://www.house.mi.gov/hfa/pdfs/medicaid%20expansion%20memo%20jul17.pdf

 6.     Senate Fiscal Agency memorandum:  http://www.senate.michigan.gov/sfa/Publications/Memos/mem062812.pdf

 7.     Center for Healthcare Research and Transformation Michigan impact analysis:   http://www.chrt.org/publications/price-of-care/aca-medicaid-expansion-michigan-impact

 8.     Federal budget deficit reduction:  http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/121xx/doc12119/03-30-healthcarelegislation.pdf

 9.     CBO analysis:  http://www.cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf

 10.   Urban Institute report:  http://www.urban.org/UploadedPDF/412630-opting-in-medicaid.pdf

 11.   A study by Harvard researchers:  http://www.nejm.org/doi/full/10.1056/NEJMsa1202099

 12.   Oregon Health Study:  http://www.oregonhealthstudy.org/en/home.php

 13.   Governor’s health message:  http://www.michigan.gov/snyder/0,4668,7-277–262254–,00.html

 14.   The Uninsured in Michigan:http://www.michigan.gov/documents/mdch/Uninsured2011FINAL_373354_7.pdf

 15.   Shifting tax burden:  http://www.milhs.org/wp-content/uploads/2010/07/TaxChangesHitLowIncomeFamiliestheHardest.pdf.

 16.   Arizona Governor’s decision to comply with Medicaid expansion:  http://azgovernor.gov/dms/upload/PR_011413_MedicaidBudgetMessage.pdf