States That Don’t Expand Medicaid Will Increase Costs Treating Uninsured Residents: Study

States that choose not to expand Medicaid under federal healthcare reform will leave millions of their residents without health insurance and increase spending, at least in the short term, on the cost of treating uninsured residents, according to a new RAND Corporation study.

If 14 states decide not to expand Medicaid under the ACA as intended by their governors, those state governments collectively will spend $1 billion more on uncompensated care in 2016 than they would if Medicaid is expanded, researchers say. In addition, those 14 state governments would forgo $8.4 billion annually in federal payments and an additional 3.6 million people will be left uninsured.

States that do not expand Medicaid will not receive the full benefit of the savings that will result from providing less uncompensated care, researchers note. But they will be subject to taxes, fees and other revenue provisions of the ACA.

Researchers used the RAND COMPARE microsimulation model to estimate the likely effects if 14 states choose not to expand Medicaid under federal healthcare reform. Among the measures studied are the impacts of Medicaid expansion on insurance coverage, federal payments into the states and state spending on care for the uninsured. The states studied are Alabama, Georgia, Idaho, Iowa, Louisiana, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas and Wisconsin. Although governors in additional states oppose expanding Medicaid, the 14 states in the study were the first whose governors said they would not expand Medicaid. At the time of the analysis, these were seen as the least likely to expand Medicaid.

Last summer’s U.S. Supreme Court ruling gave states the ability to block the law’s expansion of Medicaid, the federal-state program that provides health insurance to low-income families. The ACA provides support to expand Medicaid to include families that earn up to 138 percent of the federal poverty level.

The federal government will pay a much larger share of costs for the Medicaid expansion than it does for current Medicaid enrollees. It will cover 100 percent of the costs for expanding Medicaid beginning in 2014 through 2016, and then gradually decrease support to 90 percent of costs beginning in 2020. The federal government currently pays an average of 57 percent of the cost of Medicaid.

Researchers estimate that increased insurance coverage triggered by health reform will reduce state and local spending on uncompensated medical care by as much as $18.1 billion annually across all states. Those savings may continue beyond 2020, when the states’ share of Medicaid costs plateaus.

The study suggests that changes could be made to the ACA to help some people targeted by the Medicaid expansion to get health insurance coverage through other means. Those options include a smaller expansion of Medicaid or changes in the new state insurance exchanges to allow more poor people to purchase private health insurance. The RAND study shows the alternatives could help provide health insurance to some people targeted by the Medicaid expansion. But none of the options examined would provide health coverage to as many people as full Medicaid expansion.

Researchers also outline how failing to expand Medicaid could have more than financial consequences. Based on earlier research showing that past expansions of Medicaid has led to decreases in deaths, the study estimates that an additional 19,000 deaths could occur annually if the 14 states studied do not expand Medicaid.

Source: RAND Corporation, June 3, 2013

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