So the Supreme Court voted in favor of the Individual Mandate, but against the expansion of Medicaid, which Forbes’ Matthew Herper called a Solomonic decision about the future of health care in America that splits the baby.

What does this mean for healthcare delivery?

What Medicaid Expansion Means

One way the Affordable Care Act plans to expand health insurance coverage is by getting states to swell their Medicaid coverage to 133% of the federal poverty level in 2014, paid for mostly by the federal government in the beginning. The new nationwide eligibility threshold of 133% of the poverty level raises eligibility to $14,400 for a single adult or $29,300 for a family of four.

The potential impact:

  • 16 million people would be covered under Medicaid expansion.
  • That’s 50% of the 32 million predicted increase in coverage under the ACA.
  • A disproportionate share of new enrollees live in states in the South and West where there are more stringent eligibility rules.

Current Medicaid rules vary widely. In many Northeastern and Midwestern states, parents are eligible if they have incomes up to double the poverty level, or sometimes above, whereas in other states, such as Texas, Virginia and Missouri, only the disabled or truly indigent are eligible. The expansion of Medicaid would have helped these needy citizens the most.

The Potential Impact of the Court Decision

The court ruled that the federal government can pay for the Medicaid expansions, but can’t yank funding back if states don’t participate. This could impact states where legislators have generally shunned implementation of the law. 26 states currently oppose the expansion.

So what will the impact of the Medicaid provisions be? Since the ACA’s real impact derives from its expansion of Medicaid, the Supreme Court’s decision is worrisome. By limiting the federal government’s power to expand Medicaid in many states, the Supreme Court has seriously damaged the outcomes of universal health coverage.

First, almost half of all people who qualify for free health insurance never sign up, especially in the Southern states where the highest number of uninsured people live because those states create all kinds of barriers to Medicaid enrollment, since they have to assume some of the costs. The Supreme Court’s decision leaves the federal government without a stick to force states like Texas, Florida, and Mississippi to expand Medicaid, leaving it powerless to make sure that poor people get their coverage.

How Medicaid Expansion Really Impacts the States

States that had strict eligibility will make out well, since much of their Medicaid population will be covered at the high federal match rates for newly eligible people, whereas most of the Medicaid recipients in the other states will be covered under the existing lower rates. In Texas, the overall federal match rate will go from 60% to 67%, while in New York it will remain at about 50%. That means that medicaid expansion is a very good deal for states that need it most.

A Kaiser study released Wednesday predicts that the increase in states’ spending would be relatively small when weighed against the broad expansion of health coverage for their residents and the huge influx of federal dollars they will receive. Further, the small increase in state costs may be canceled out by savings from no longer having to subsidize the care of uninsured people.

The federal government currently shares the cost of Medicaid with the states, from splitting it 50-50 in wealthy states to picking up 75% in poor states. Under the new law, the federal government will cover 100% of the cost for all newly eligible people through 2016, stepping down to 90% in 2020 and beyond – paying for this through industry fees, cuts elsewhere in the health-care system and higher taxes on the wealthy.

Overall, the federal share of the expansion cost will be:

  • between 92% and 95% from 2014 through 2019.
  • By 2019, state spending will increase 1.4% and federal spending will increase by 22%.
  • Higher participation means relatively small increases in state spending.

A Very Good Deal for States That Need It Most

There would likely be a huge jump in enrollment with very insignificant expected increases in state spending. The report predicts how it would impact needy states:

  • Washington DC: 16% enrollment increase; 1% cost incease.
  • Maryland: 32% enrollment increase; 2% cost increase.
  • Virginia: 42% enrollment increase; 2% cost increase.
  • Texas: 45% enrollment increase; 3% cost increase.

Little Effect In States That Are Doing a Good Job

In states that have invested most in expanding Medicaid to low-income adults, the law will have relatively little effect. In New York, for example, the Medicaid population is expected to increase by only 6% by 2019, and the cost impact is expected to be negligible.

Medicaid is a Low Cost Program

Growth in Medicaid Spending vs. Private Insurance Spending

According to the Kaiser Foundation, the average cost growth from 2000-03 was:

  • 6.9%: the average growth of per enrollee Medicaid costs for acute care.
  • 9%  the increase in per enrollee costs for the privately insured.
  • 12.6%: the growth in employer-sponsored insurance premiums.

Figure2_Average_Annual_Medicaid_Spending

What Drove Medicaid Spending And Enrollment Growth?

Between 2000-03:

  • 68% of the growth in Medicaid spending was attributable to acute care.
  • 30% was attributable to long-term care due to the faster growth in enrollment of children and non-disabled adults into the program during the period.
  • 90% of Medicaid’s total enrollment growth (8.4 million) was from families.
  • Yet families only accounted for 44% of spending growth.
  • 10% of enrollment growth was from the elderly and individuals with disabilities.
  • Elderly and individuals with disabilities were responsible for 56% of spending growth, due to their intensive use of services.

Then Why Are Some States Objecting?

Alan Weil, executive director of the National Academy for State Health Policy, said some states may be protesting nonetheless because they are worried about affording even their small share of the expansion — and because they may be less committed to Medicaid generally. Someone who is offered a $200 pair of shoes for $20, he said, will appreciate that only if he likes the shoes — and if he has $20.

“This is a pretty good deal,” Weil said. But the question is whether “states focus on what they’re going to get versus whether they can afford this smaller amount they have to put in.”

Of course, the more cynical answer is: politics as usual. With the trend of Republican governors moving to the extreme right, and staking their political futures on a platform of resisting Obama’s “socialist agenda,” governors who put their own political careers ahead of the welfare of their neediest constituents will tend to oppose the expansion of medicaid in their states.

What’s Next?

Gail Wilensky, senior fellow at Project HOPE who  directed the Medicare and Medicaid programs from 1990 to 1992 and served as a senior health and welfare adviser to President George H.W. Bush observes in a New York Times article:

The Medicaid expansion will be particularly challenging for some Southern states that have the least generous programs. Louisiana, for example, has estimated that the law will mean that 37% of its entire population will be on Medicaid as of 2014. It is hard to imagine how states that have large populations with no insurance at all, like Texas, will experience the Medicaid expansion.

Challenges ahead

Pressures on the Medical Infrastructure: Wilensky notes that pressures on states, hospitals and doctors will be huge as coverage expands:

It is also hard to imagine the pressures on the physicians, nurses and hospitals that will be trying to provide medical services to all of these newly insured individuals and to do so while taking care of their traditional patient populations.

Before reform Massachusetts had 10% uninsured and now it’s down to 3%. Even with these relatively small increases in the number of insured, there have been reports of stresses on the delivery system, particularly in the western part of the state which is one of the few areas that does not have an abundance of individual and institutional providers.

This is why the law was designed to phase in over several years – to give states the chance to ramp up in preparation for universal coverage.

Increased Costs: State reluctance to expand Medicaid holds that it’s just too expensive and the ACA does little about that. For example, health care costs now consume 54 percent of Massachusetts’s budget, with the lion’s share going to the expanded Medicaid, despite federal subsidies, while the hope that newly insured people will take advantage of more preventive services, often touted as a means to cut costs, hasn’t panned out, according to a new study from Oregon.

 The ACA’s central effort to keep these costs down is to fund several experiments including two Accountable Care Organization pilots—the “Pioneer” and “Shared Savings” programs—which allow private insurers to contract with Medicare to take a fixed budget and take full responsibility for a large block of patients. If the patients’ care costs more, the insurers eat the cost; if the care costs less, the insurers keep the difference. This may or may not work.

Ruling A Net Gain for the Advancement of US Health Care

In the final analysis, the Supreme Court ruling was a net gain since the ACA was the only serious effort any party put forward to tackle the very serious problem of the uninsured. But there’s a lot of hard work to be done in an environment of toxic political polarization.

The Massachusetts experience has shown that there are three important challanges: expanding coverage, curbing spending growth, and improving quality of care. Massachusetts is just beginning to tackle some of these harder challenges. Expanding coverage to 32 million more people means that it’s time to resolutely tackle the hard challenges.

About Policy and Politics:
This blog seeks to examine issues related to financial services marketing, strategy and service in a non partisan manner. To examine the impact of government policy on financial services in a non partisan light, articles of this type will be categorized as “Government Policy” rather than politics.
 
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