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State Lawmakers Must Consider All the Information Before They Expand Medicaid

State Budget Solutions | by Bob Williams | February 14, 2013

Download file Medicaid Expansion SBS

The Supreme Court's ruling on the Patient Protection Affordable Care Act (PPACA) allowed the states to opt out of the law's provision requiring the expansion of Medicaid. Under the original legislation, the federal government would require states to expand Medicaid to cover those making 133 percent of the poverty level. States that refused to participate in the expansion would lose the federal funding for Medicaid entirely. Now, the federal government cannot condition federal dollars on the participation of each state in the Medicaid expansion plan. Either way, the federal government will cover the costs of the expansion only through 2014, after which the states must pay an additional 10 percent by 2020.

As of February 13, 2013, thirteen states in the nation will not participate in the Medicaid expansion; five states are leaning towards not participating.  Oppositely, twenty-one states and the District of Columbia will participate in the Medicaid expansion, and four additional states are leaning in that direction. Seven states are still undecided. See the chart below:

Not Participating

Leaning Towards Not Participating

Participating

Leaning Towards Participating

Undecided

Alabama

Iowa

Arkansas

Kentucky

Alaska

Georgia

Nebraska

Arizona

New Hampshire

Florida

Idaho

New Jersey

California

New York

Indiana

Louisiana

Virginia

Colorado

Oregon

Kansas

Maine

Wyoming

Connecticut

 

Tennessee

Mississippi

 

Delaware

 

Utah

North Carolina

 

District of Columbia

 

West Virginia

South Carolina

 

Hawaii

 

 

South Dakota

 

Illinois

 

 

Oklahoma

 

Maryland

 

 

Pennsylvania

 

Massachusetts

 

 

Texas

 

Michigan

 

 

Wisconsin

 

Minnesota

 

 

 

 

Montana

 

 

 

 

Nevada

 

 

 

 

New Mexico

 

 

 

 

North Dakota

 

 

 

 

Ohio

 

 

 

 

Vermont

 

 

 

 

Washington

 

 

Each of the thirteen states refusing to participate in Medicaid expansion is led by Republican Governors. Of the twenty-one states participating, just six Governors are Republicans, and the only Independent is Rhode Island Governor Lincoln Chaffee.

Why the refusal?

First, Medicaid often offers more than it delivers. It is widely recognized that the current Medicaid system is fraught with waste, fraud, and inefficiency. Medicaid patients often have worse access to care and less than ideal outcomes. Given that Medicaid typically pays 56 percent of the amount that private insurers pay, hospitals increasingly cannot accept Medicaid patients and continue to remain fiscally solvent. As a result, it is difficult for Medicaid patients to find primary health physicians and specialists, and thus, do not receive the preventative care that many privately insured patients receive.

Second, the Medicaid regulations are extremely complex.  On January 14, 2013, Health and Human Services issued a 472 page regulations aiming "to streamline the process for determining who is eligible for the expanded Medicaid program" - 472 pages is considered "streamlined"?!

Third, the true cost of Medicaid expansion is virtually unknown. Although cost projections are a dime a dozen, it is difficult to project how many new enrollees will take advantage of the program, and how many businesses will enroll. The cost of the "woodwork" effect, or the individuals that will come out of the woodwork and enroll in the new program, can vary dramatically. The federal government will not cover the administrative costs of the expansion. Of Medicaid, but will continue with only the existing match rates for administrative costs.

The uncertainty of future federal Medicaid match rates is the most important factor. Even now, states rely heavily on federal funding, and it is well understood that that funding may very well expire. Dependence on federal funding has continually risen since 2008. In 2011, forty-two states received more than 1/3 of their general funds from the federal government. Mississippi received nearly half (49.01%) of their general revenue from the federal government, the highest percentage in the nation. Louisiana received the second highest percentage, relying on the government for 46.52% of general revenue. Alaska, the state receiving the lowest percentage of funding from the federal government, still relies on federal funds for 24.01% of funding for state programs. Comparatively, in 2008, Mississippi received 46.76%, Louisiana received 46.22%, and Alaska received just 13.53%.

Additionally, federal funds are hardly reliable, as evidenced by Moody's. Last week, Moody's assigned a negative outlook to Missouri because of its link to the federal government.  Moody's cited two areas of concern -the amount of federal purchasing in Missouri, such as for military contracts, and the proportion of the state budget compromised by the federally and state-funded Medicaid program. New Mexico, Maryland, and Virginia all previously had their AAA credit ratings assigned a negative outlook by Moody's because of their financial links to the federal government.

Although PPACA stipulates that the federal government will pay at least 90 percent of the benefit costs for the first three years, state lawmakers have no guarantee that the funding will continue to exist, and the current state of federal funding to the states suggests that additional Medicaid funding may not be feasible.

If It's Too Good To Be True, It Probably Is

The federal government is selling the Medicaid expansion as a great program, covering everyone that needs or wants coverage. By promising to carry the costs for the first years of the program, the short-sighted perks are appealing, but as expansion grows and the federal government withdraws financial support, the states will be left with growing enrollee numbers and skyrocketing costs. All in all, the Congressional Budget Office projects that Medicaid expansion will increase federal spending by $642 billion.

Before states expand Medicaid they need to take a careful look at the short-term federal windfall from expanding Medicaid versus the long-term costs and potential impact on their state credit ratings.

 For more information, please see these recommended readings:

For more information on what is happening in specific states, see these recommended readings:

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