Few foresaw the direction that the Supreme Court would take the decision on the Patient Protection and Affordable Care Act, also known as PPACA or Obamacare. Immediately after the decision, public focus was still on the retention of the individual mandate. Though the Court’s change in the Medicaid expansion was unexpected, Health and Human Services Agencies (HHSA’s) and Treasuries of states began crunching numbers directly after the decision, some maybe before. And over the last week or so, the first state economic analyses have emerged.
First, a recap: PPACA includes an expansion of Medicaid, the federal health safety net which provides health coverage to people with disabilities as well as poor pregnant women and families with children (Medicaid 1.0).
The expansion would include “childless adults” and others with incomes up to 133 percent of poverty (about $30,000 a year for a family of four, or $15,000 for an individual), also called Medicaid 2.0. The federal government would not mandate the expansion, but hoped that any state that refused would lose all Medicaid funding, not just money for Medicaid 2.0.
However, the Supreme Court decided that the federal government does not have the power to deny a refusing state total Medicaid funding for which it would otherwise be eligible (Medicaid 1.0); this would comprise “coercion.” That is to say states may, if they so choose, refuse to expand to Medicaid 2.0, and the federal government would still be responsible for funding Medicaid 1.0.
As soon as their staffers were able to interpret the Supreme Court decision, several governors declared they would take advantage of the decision and refuse to expand Medicaid.
The ultimate decision whether to reject Medicare 2.0 is a complex one; it will involve considerations of associated costs, savings, payment transfers, and potential changes in employment that the expansion would bring about.
And while it is all but certain that private insurers and hospitals will benefit financially from many aspects of PPACA, much of the debate surrounds the effects of Medicaid 2.0 on national, state, and personal budgets.
Soon after the Supreme Court decision, the Congressional Budget Office (CBO) submitted an economic analysis of the projected impacts on the federal budget. Prior to the decision, the CBO had projected that PPACA would reduce net federal deficits over the next decade. However, updated for Medicaid 2.0 exemptions, the CBO expects Congress will save an additional $84 billion on funds refused by states. This comprises 0.2% savings on federal budget expenditures over 10 years.
PPACA, as written, pays the full cost of Medicaid 2.0 from federal coffers for three years, 95% for three more, then finally paying 90% of the cost long-term. Therefore, Medicaid 2.0 will transfer funds from the national Treasury to accepting states’ health programs. If a state refuses Medicaid 2.0 funding, that becomes one less expense for the federal budget.
Several state HHSA’s and Treasuries project savings from Medicaid 2.0 funds transferred from the federal government. With this external money, the Arkansas Department of Public Health expects to save about $372 million between 2014 and 2020. Much of the state’s savings come from direct federal payments and reductions in uncompensated care – the cost of uninsured emergency room visits, for example.
After 2020, the federal government will pay 90% of the Medicaid 2.0 expenses. From that point on, Arkansas projects net costs of $3.4 million yearly, breaking even in approximately a century.
Medicaid 2.0′s costs to states are largely those of outreach to newly eligible patients, new administrative demand, and covering those who were eligible for Medicaid 1.0 but never had coverage. As a result of the latter item, states who were previously non-compliant with Medicaid will share some of the cost of the program in the first three years (approximately 3 percent). According to the Kaiser Family Foundation, however, these states tend to have higher rates of uninsurance, and therefore have more to save from uncompensated care.
Beyond the healthcare costs, state economies may also experience changes in employment related to Medicaid 2.0. The CBO expects Medicaid 2.0 to provide coverage to 15 million people; the health industry would grow accordingly. Manufacturing, delivery, and construction would also see job growth, following the expansion of the health industry. While there appear to be no studies estimating how many jobs would result from Medicaid 2.0, it would increase insurance coverage by approximately 6 percent nationally.
In addition, the impact on health would change the labor force. Chronic illness and other preventable diseases impede the capacity to be an economically productive individual. In fact, according to the University of Michigan’s Health and Retirement Study, “[more] than half of men and one-third of women who left the labor force before the Social Security early-retirement age of 62 said that health limited their capacity to work.” Providing coverage to uninsured persons may improve health outcomes.
Economist Casey Mulligan, however, believes that Medicaid 2.0 will increase unemployment. He reasons the promise of coverage will be an incentive for workers to quit their jobs in order to collect health benefits.
However, the original focus of the Medicaid 2.0 was families and individuals. Again, the Obama administration wrote PPACA to ensure that people with incomes up to 133 percent of federal poverty would have access to Medicaid coverage. People with incomes between 100 percent and 400 percent of poverty could receive subsidies to purchase private insurance. Those in the overlap (100 to 133 percent) could choose between Medicaid or subsidies for private insurance. For this group, choosing subsidies over Medicaid would likely lead to seven times the expenses for consumers, and 30 percent higher costs for the health field altogether.
If a state refuses Medicaid 2.0, there will be what’s called the new Medicaid doughnut hole. While the availability of subsidies will not change, for those with incomes less than 100 percent of poverty, subsidies are not an option, and most are not eligible for Medicaid 1.0; they have no option but to pay full-price for health insurance. In Texas, where Gov. Perry declared he would refuse Medicaid 2.0 according to PPACA, 25 percent of the population – over 6 million people – would be left in poverty without any insurance assistance. Based on expectations of which states will refuse the expansion, as many as 8.5 million people would be stuck in the new doughnut hole nationally.
A family of four living at the federal poverty line in a Medicaid 1.0 state will pay, on average, an $8,600 share of health costs out of their $23,000 yearly income, or 37 percent of income.
Without Medicaid 2.0, individuals and families in poverty will be left with either very expensive insurance or no care at all. These people will be more likely to fall ill, struggle to pay health bills, declare bankruptcy due to health bills, develop chronic or debilitating illnesses, and die prematurely. The economic impacts of these trends have not yet been studied in relation to Medicaid 2.0.