Making dollars and $ense of Medicaid Expansion

Much has been touted on the positive impacts of Medicaid Expansion. As discussed in one of my prior posts, Expansion has been associated with improvements in certain health measures on top of the personal and socioeconomic benefits to lower income groups of gaining health care coverage.

It is also well-documented that Medicaid Expansion is having positive financial impacts on state budgets. While states will have to pay 10% of the costs of Medicaid Expansion starting next year, that increased outlay seems to be offset by a number of factors:

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  • Savings in behavioral and correctional health programs that were previously funded through state-only dollars. Under Medicaid Expansion those costs are now covered at the enhanced federal match rate—the federal government covers 90% while state dollars pay for 10%.  Behavioral and correctional health budgets in Michigan have been reduced by $235 million since 2014 due to Expansion.[1]
  • Savings from drawing down the enhanced federal match for Expansion-covered groups. For example, women enrolled in the Expansion group and who become pregnant are covered at the enhanced rate (90%), even though they would have otherwise been covered at the state’s typical Medicaid match rate (50%) if they became pregnant absent Expansion. Maryland estimated savings of $8.2 million in 2015 due only to this effect.[2]
  • Increased revenue due to existing provider and insurer taxes that are tied to the number of individuals covered and accessing care, which has risen as a result of Expansion.

These dynamics have a positive net fiscal impact (revenue growth minus expenditure growth) for states. A recent study from the University of Montana shows that the state spent approximately $39.6 million in state dollars for Medicaid Expansion in 2018 but actually saw savings in other parts of its budget of over $40 million and a net fiscal impact of over $48 million.[3] The increased revenue from drawing down additional federal dollars and offsetting other costs that were previously funded by state-only dollars or matched at the state’s traditional federal rate is generating economic gains for Montana.

 

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The University of Montana study also points to an economic butterfly effect in the form of job creation and economic output. The study indicates that as of 2016, Medicaid Expansion added over 3,000 jobs in the state and led to $336 million in new personal spending.[4] A 2015 study by Deloitte of the Kentucky Medicaid Expansion program had similar findings.[5] Access to health coverage has allowed Expansion enrollees to spend their money elsewhere and contribute more broadly to the state economy.

The story of the positive impacts of Expansion is growing and researchers continue to study its long-term effects. As a policy watcher, I am curious how this growing body of evidence will play out in states that are evaluating partial Medicaid Expansion.

States including Georgia and Utah are seeking federal approval to expand Medicaid eligibility to childless adults earning up to 100% of the federal poverty level (FPL) instead of 138% FPL as indicated by the Affordable Care Act (ACA)—while also receiving the enhanced federal matching rate (90% starting next year).

In the past, the Centers for Medicare and Medicaid Services (CMS) have not allowed states that want to partially expand eligibility for this group to receive the enhanced match. Wisconsin elected to cover adults up to 100% FPL through Medicaid in 2014 but currently receives its standard federal match rate (59.36%).[6],[7]

CMS affirmed this decision just last week when it announced it will not be providing the enhanced federal matching funds to Utah for its partial Medicaid Expansion program [LINK]. According to the Washington Post, the Administration came to this decision because it holds the position that the entirety of the ACA should be overturned and that approving generous federal funding for partial expansion does not align with that position.

While this position impacts the Administration’s decision not to provide enhanced federal funding for partial expansion, it does not appear to impact the federal position on providing the enhanced federal match for “full” Medicaid Expansion. Last year, CMS approved the use of enhanced funds for Virginia’s Medicaid Expansion, which covers adults up to 138% FPL and the Commonwealth began implementing the program earlier this year.

Utah has yet to submit its formal waiver request for the enhanced funding but state officials have indicated they still intend to do so. The state previously received CMS approval to expand eligibility to 100% FPL at its standard match rate. It is unclear as of the writing of this post how Georgia state officials will respond. Policy watchers like me are keeping a close eye on how this decision will play out, and how states interested in partial Expansion will respond to CMS’s decision to deny the enhanced match for partial Expansion.

 

References

[1] Ayanian, John Z., et al. Economic Effects of Medicaid Expansion in Michigan. New England Journal of Medicine. February 2017. Available at https://www.nejm.org/doi/full/10.1056/NEJMp1613981

[2] Manatt Health and the Robert Wood Johnson Foundation. States Expanding Medicaid See Significant Budget Savings and Revenue Gains. March 2016

[3] University of Montana Bureau of Business and Economic Research. The Economic Impact of Medicaid Expansion in Montana. April 2018.

[4] IBID

[5] Commonwealth of Kentucky Office of the Governor Press Release. Ky’s Medicaid Expansion: 40,000 Jobs, $30B Economic Impact. February 2015. Available at https://dss.mo.gov/mhd/oversight/pdf/150217-kentucky-medicaid-extension-press-release.pdf

[6] Kaiser Family Foundation. Federal Medical Assistance Percentage (FMAP) for Medicaid and Multiplier – FY 2020. Available at https://www.kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[7] The standard federal matching rate is the level of funding the federal government provides to a state to cover the cost of eligible Medicaid expenditures, based on the average per capita income of the state compared to the national average. Certain services and populations, such as Expansion, receive an enhanced rate, over and above the rate at which the federal government provides for standard Medicaid populations and services.

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