Report on Medicaid: Gains Outweigh Extra Costs (IN)

June 1, 2010

Indiana’s Medicaid costs could increase by as much as 5 percent because of the federal health-care overhaul, according to estimates by the Kaiser Family Foundation, a nonpartisan health policy research group.

That spending will result in a much bigger increase in the number of Hoosiers on Medicaid — a jump of 29 percent to 42 percent — because the federal government is picking up most of the additional cost for the required expansion.
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"For a relatively small investment of state dollars, states could see huge returns in terms of additional coverage for their lowest-income residents, with federal dollars covering the bulk of the bill," Diane Rowland, executive vice president of the foundation, said of the estimates released last week.

Still, the additional cost to Indiana could be $478 million to $899 million from 2014 to 2019. Gov. Mitch Daniels, who has projected a bigger increase, has said the state can’t afford the expansion.

"In any scenario, the cost of federal health care reform will create an enormous new burden for the taxpayers of Indiana," Daniels wrote to two of the state’s federal lawmakers recently.

Previous audits done for the state have shown the federal health-care legislation could cost Indiana $2.9 billion to $3.5 billion over 10 years, the largest portion from adding Hoosiers to the Medicaid rolls.

Democratic U.S. Reps. Baron Hill and Andre Carson have criticized the "worst-case scenario" as an attempt by Daniels to "politically assail health reform."
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Alan Weil, executive director of the National Academy for State Health Policy, said states' reactions to the law depend largely on whether they think the glass is half-full or half-empty. Some states are focusing on the fact that they're getting a large return for a small investment. Others are wondering whether they can afford any additional costs despite the return.

States also are dealing with a lot of unknowns because it’s difficult to predict how much Medicaid rolls will increase, how much money they’ll save in certain areas and how much extra spending they’ll face.

"There’s a lot of uncertainty here, both positive and negative," Weil said. "States are in the worst fiscal conditions they’ve ever seen."

The Kaiser Family Foundation report focused on the health-care overhaul’s expansion of Medicaid, one of the main ways the new law is projected to extend health care to 32 million uninsured Americans.

Beginning in 2014, eligibility for the joint federal and state program for the poor will be expanded to people earning up to 133 percent of the poverty threshold ($29,327 for a family of four). The federal government will pay the entire cost of the expansion for the first three years. After that, the federal government’s share declines to 90 percent by 2020.

Researchers say Medicaid rolls will expand as newly eligible people sign up and increased outreach adds those who could be covered now but haven’t enrolled. The group said it depends in large part on how aggressively states implement the changes.

"States that go slow are going to have lower increases in spending; they’re going to cover fewer people," said John Holahan, director of the Urban Institute’s Health Policy Research Center and the lead author of the report.

Researchers modeled two scenarios, one that estimated people would join Medicaid at moderate rates, as they do now. If that happens, an estimated 297,737 Hoosiers could be added to Medicaid, and the number of uninsured poor adults could decline by 44 percent.

The other looked at what would happen if 75 percent of all newly eligible uninsured people signed up and if there were an increase in those currently eligible. Under that scenario, an additional 427,311 Hoosiers could be on Medicaid, and the number of uninsured poor adults could decline by 69 percent.

Indiana originally estimated that nearly everyone who becomes eligible for Medicaid would sign up for it, adding about 500,000 Hoosiers to the rolls. Holahan and Weil said 100 percent participation is unrealistic. Nationally, about 57 percent of the uninsured who are now eligible for Medicaid participate.

Even if not everyone eligible signs up, the state estimates, the new law will require an additional $2.9 billion over 10 years.

The state’s estimates include other costs of the overhaul, beyond the direct cost of adding people to Medicaid. For example, the state expects that it will have to increase the reimbursement rate for Medicaid providers and will get a smaller rebate on Medicaid drugs.

The Kaiser report did not look at other cost and savings factors. But Holahan said there could be considerable savings to states from things such as no longer having to pay for uncompensated care.

"The changes in the end, from a state budget perspective, are actually quite incremental," Weil said.