Wednesday, August 1, 2012

More Uncertainty Regarding Medicaid Cost Estimates

In a post yesterday, we compared and contrasted estimates from the Congressional Budget Office and the Medicare actuary about who might enroll in the new Medicaid expansions in 2014.  It’s also worth examining estimates of per-beneficiary spending by these newly covered individuals, which will depend in large part on whether those newly enrolled in Medicaid will be more or less healthy than the existing Medicaid population, and whether the new enrollees will engage in a burst of initial spending due to pent-up demand for unmet health needs.

In its re-estimate of the health law last week, CBO assumed that “for the average person who does not enroll in Medicaid as a result of the Court’s decision and becomes uninsured, federal spending will decline by roughly an estimated $6,000 in 2022.”  Conversely, the graph below from the Medicare actuary’s report on Medicaid in March shows that the actuary assumes total Medicaid spending per beneficiary on the newly eligible populations will total less than $5,000 in 2020 for adults in the expansion population, and about $2,000 for children:
 
Admittedly, these two sets of figures are not strict “apples-to-apples” comparisons.  CBO’s assumption discusses 2022 federal spending on Medicaid, whereas the Medicare actuary examines 2020 total Medicaid spending (10 percent of which will be borne by states in 2020).  And those who will not enroll due to the Supreme Court ruling may have different health characteristics and costs than the expansion population as a whole.  That said, it appears safe to assume based on these data that CBO presumes higher projected Medicaid costs for the expansion population than does the Medicare actuary.

To sum up, prior to last month’s Supreme Court ruling:

  • CBO assumed at least 9.5 million newly eligible people would enroll in Medicaid; 7.5 million already eligible people would decide to enroll in Medicaid due to the law; and federal Medicaid spending would cost $6,000 in 2022
  • The Medicare actuary assumed at least 21.2 million newly eligible people would enroll in Medicaid; 4.7 million already eligible people would decide to enroll in Medicaid due to the law; and total Medicaid spending (i.e., state and federal) would cost $5,000 per newly-enrolled adult and $2,000 per newly-enrolled child in 2020

We highlight these disparities to show the VAST degree of difference between the two sets of estimates – and therefore the large degree of uncertainty associated with the law’s impact.  If 21.2 million newly eligible people enroll in Medicaid, as the Medicare actuary predicts, the predictions of the Congressional Budget Office – which thinks about half that number will enroll – about the law’s deficit neutrality would likely be shattered.  Likewise, given the chart above, if adults in the expansion population incur expenses as great as adults in the existing Medicaid population, the law will increase the deficit by a significant amount.

The differences above demonstrate that the law’s supposed “deficit reduction” is far from a sure thing.  In fact, given the things that must all fall into place for the law actually to live up to its fiscal hype, many may say that such assertions are highly dubious, and likely to be proven wrong.