Wednesday, May 26, 2010

States WILL Pay for Washington’s Health Care Law…

The Kaiser Family Foundation is out with a study today alleging that new state Medicaid costs will be relatively modest as a result of the health care law’s enactment.  But problems with the survey’s methodology – and the critical information Kaiser declined to include in its analysis – demonstrate that state costs will likely be much higher:

  • The Kaiser study assumes relatively low Medicaid take-up for individuals currently eligible for Medicaid but not enrolled in the program.  Even under the study’s “enhanced participation” scenario, the study presumes that only 5% of those currently in employer coverage, and 10% of individuals currently with individual insurance coverage, will enroll in Medicaid.  Given the “free” nature of the program, and the high levels of publicity associated with the law, the “woodwork effect” (whereby people come “out of the woodwork” after many years to enroll in a program) may be much greater.
  • Because states will only receive an average 57% federal match for currently eligible populations (as opposed to an eventual 90% match for newly eligible populations), any increase in Medicaid rolls due to the “woodwork effect” would hit state budgets particularly hard.
  • Even under the low “woodwork effect” assumptions discussed above, state spending on current eligibles would exceed that on newly eligible populations under the “enhanced participation” scenario (Table 4, p. 40 of the PDF).  As the “enhanced” scenario assumes that only 2.8 million currently eligible individuals would decide to enroll in Medicaid (Table 3, p. 39 of the PDF), and as some estimates suggest up to 10 million individuals actually fall into this category, state spending could skyrocket if several million more individuals who are currently eligible for Medicaid decide to enroll as a result of publicity surrounding the law (or if access to any existing coverage they may have is jeopardized as a result of the law’s enactment).

Meanwhile, the Kaiser study includes several key omissions:

  • The study only examines the years 2014-2019, when the federal government will be paying a higher share of Medicaid costs, as outlined in the law.  Costs for states will go up beginning in 2020 – and for every year thereafter – once the federal match declines, and the analysis did not take these increased costs “in the out years” into consideration.
  • The study also omitted an analysis of the primary care reimbursement provisions included in the health law.  Medicaid primary care providers would receive a reimbursement bonus in 2013 and 2014 – but would be subject to an average 50 percent pay cut beginning in January 2015.  Someone – either states or the federal government – will have to pay for this extension if Medicaid beneficiaries are actually going to have access to care (as opposed to an insurance card they can’t use), and the Kaiser study doesn’t address this looming unfunded mandate.
  • The study also omits the impact of the health law’s cuts to Medicaid disproportionate share hospital (DSH) payments, which CBO estimated would cut more than $14 billion in funding during the 2014-2019 period.
  • Because the study focuses on Medicaid, it does not attempt to quantify the law’s additional mandates on states not related to Medicaid spending, such as establishing exchanges, undertaking insurance law reforms, etc. – the full cost of which may not in fact be borne by the federal government.

So once again a study attempts to arrive at definitive “conclusions” while including several favorable assumptions to make that case.  Moreover, the entire study misses the point being driven home by the current “extenders” debate, whereby Democrats want to increase the budget deficit in order to pay a higher federal share of states’ existing Medicaid programs.  A majority of the House recently sent a letter saying the “stimulus” increase in federal Medicaid funding is critical because otherwise “states and territories will not have the resources they need to successfully implement health reform.”  So if states can’t fund their existing Medicaid programs, and even Democrats admit that a new federal bailout is needed for states “to successfully implement health reform,” what further evidence is needed to confirm that the law places an unsustainable burden on already strapped state budgets?