Debate on Medicaid Expansion Lacks Solid Data on Future Costs

To appreciate what state officials in Florida and throughout the nation have been going through as they try to gauge the Patient Protection and Affordable Care Act’s long-term impact on each state’s budget, just imagine the following scene:

You’re in a car dealer’s showroom, bargaining over the price of a brand-new vehicle. The salesman, after appraising your trade-in and consulting with the dealership’s manager, triumphantly returns with a slip of paper in his hand outlining his proposal for a deal.

“Your monthly payment,” he explains, “will be either $300 a month or $2,600 a month, we can’t say which. Just sign here.”

Such a deal! Unfortunately, the stakes are even higher for Florida taxpayers. Medicaid expansion is arguably the largest single issue state lawmakers will face this year. The expansion’s proponents claim that the cost over the next decade will be relatively modest. Its opponents claim its 10-year cost will be  somewhere in the $20 billion range — or even more.

Why the wide range in cost projections? Because the major concern is not just this year or next, but the program’s long-term costs. That’s why both sides have focused on the projected expansion costs over a 10-year period, from now through the fiscal year 2022-23.

Foretelling what might happen over a 10-year period in a program funded through a federal-state match is has become even more dicey because of all of the uncertainty in Washington, where there’s a growing concern over federal deficits and the rising cost of entitlements such as Medicaid.

Even so, there’s no shortage of players willing to come up with a number. Dr. Jonathon Gruber, the architect of the Massachusetts law known as “Romneycare” and the PPACA, referenced the Urban Institute’s research in his testimony to the Florida Senate on January 22; an Urban Institute report prepared for the Kaiser Commission on Medicaid and the Uninsured estimates that Florida’s 10-year cost if it chooses to expand eligibility for Medicaid as the PPACA recommends would be $8.9 billion.

However, the same report also says that some of this cost would be offset by savings because, with more people insured, fewer would seek care in hospital emergency rooms. Therefore, the report says, net cost to Florida taxpayers would be $4.1 billion over the 10 years.

This study also notes that the federal government has promised to pay for most of the increased cost of expanding Medicaid. If every state agreed to expand Medicaid, federal spending would increase by $952 billion over 10 years. If the feds keep their commitment, the combined state contribution over the same period figures to be $76 billion, according to the study.

However, the federal government’s plan to cover 100 percent of the Medicaid expansion’s cost for the first three years and 90 percent thereafter applies only to the newly eligible — those who would now be eligible to join if the state were to agree to the expansion.

But here’s where the calculations get tricky. There would be no change in the federal-state funding match for those who are currently eligible; the federal government only pays 56 percent of Florida’s costs for the state’s 3.3 million Medicaid recipients. So Kaiser report assumes that considerably more newly eligible – rather than currently eligible – people will come out to join the program.

The Urban Institute calculates 60.5 percent of people who were newly eligible would join, while only 23.4 percent who are currently eligible but have not previously enrolled would now enroll. The participation rate model that Urban used was based on a number of factors including race, ethnicity, income, education, previous coverage, and whether they were currently or newly eligible in order to determine the likelihood that they would participate.

The irony here is that the low-income people, those who currently qualify for Medicaid, according to this model are significantly less likely to join. It appears that Urban report relies on research that projects a relationship between level of poverty and the likelihood of participation as a spurious relationship.

The “Woodwork Effect”

Differing research postulates that between the penalties from the individual mandate for those who lack insurance, the easier access to public information about the program, and the streamlined Medicaid process, many more low-income Floridians will come out of the proverbial woodwork to join the program.

This “woodwork” effect would include higher numbers for those who currently qualify for Medicaid but have not signed up. Florida would not receive the enhanced funding for these people, rather the 56 percent rate.

The implication is that there is no accurate way to predict just how many eligible people would join the program. Carol Gormley, the Senate’s Senior Policy Advisor on Health and Human Services, summed up the legislative uncertainty last Friday during a media briefing on the Florida budget:  “We could have more, we could have less.”

Critics say the validity of the Urban Institute’s model is highly questionable. Opponents to expansion likely see it as a measure of who is in the program now in terms of demographics, not who is likely to join under these new circumstances.

The Urban Institute report has also been criticized for its assumption that 10 years from now the federal government would still be paying 90 percent for some and 56 percent for others in the same program.

Critics point to the fact the most recent budget proposal from the Obama Administration would already make changes to this rate. Although these particular changes are not financially significant, it is an indication that further changes can be expected – including changes in the respective shares borne by the deficit-ridden federal government and the states.

Those rates are not chiseled in stone. As Gormley candidly addressed the issue in front of the Capitol Press Corps, “There is considerable debate about whether the feds will be able to meet that promise.”