Burden inflicted on low-income families is just the beginning of the hurt millions will feel in states rejecting Medicaid expansion

Red state pain won’t be limited to poor

Burden inflicted on low-income families is just the beginning of the financial hurt millions will feel in states rejecting Medicaid expansion

By
October 30, 2013
 

 

Medicaid expansion was established as a cornerstone of the ACA, and would have provided coverage for virtually all low-income Americans. But in 2012, the Supreme Court ruled that states could not be forced to expand Medicaid, leaving the final decision up to each state. So far, 25 states and the District of Columbia are moving forward with Medicaid expansion. The other 25 states are either not participating, or are still considering their options.

Unfortunately, states with the highest percentage of low-income uninsured residents are least likely to be expanding Medicaid. Subsidies in the exchanges are available for households with incomes between 100 percent and 400 percent of poverty level. Households below 100 percent of poverty level were supposed to be covered by Medicaid, but in states that are not expanding Medicaid, many of them do not meet existing Medicaid eligibility rules. Their income is too low to qualify for exchange subsidies.

Three million people – who would have otherwise had coverage – are expected to remain uninsured in states that are not expanding Medicaid.

Although the people most obviously impacted when states decide not to expand Medicaid are residents who would otherwise qualify for Medicaid, the decision also has broader ramifications. Not only will the states end up paying billions of dollars in uncompensated care for residents who remain uninsured, but private health insurance in states that don’t expand Medicaid will be more expensive as well.

States turn their backs on Billion$

Recent studies by RAND Corp and Kaiser Family Foundation found that Medicaid expansion – and the related drop in uncompensated care costs – would save a total of more than $18 billion across all states over the next decade. The deal is further sweetened by the fact that the federal government picks up the lion’s share of the expenses associated with expanding Medicaid: 100 percent of additional Medicaid expenses in the first three years, with the federal government’s share gradually decreasing to 90 percent by 2020 and remaining at 90 percent after that.

States that are not expanding Medicaid are turning their backs on hundreds of billions of federal dollars over the next decade. And the reduction in uncompensated care costs will actually lead to many states experiencing a net savings with Medicaid expansion. Yet half of the states are not moving forward with Medicaid expansion.

A state’s Medicaid expansion decision impacts private health insurance premiums as well. States that don’t expand Medicaid are expected to have private insurance markets with less overall stability, due in part to an increased volume of residents “churning” between private health insurance and no health insurance.

Instability, higher premiums

This is essentially a form of adverse selection, as these residents are likely to seek care shortly after becoming insured, and concentrate their care into timeframes when they have insurance. This ultimately leads to a destabilized private health insurance market and higher premiums.

In addition to a less stable health insurance market, subsidy eligibility in the exchanges starts at 100 percent of poverty level in states that are not expanding Medicaid, versus 138 percent in states that are expanding Medicaid. People with incomes between 100 percent and 138 percent of poverty level are projected to need more healthcare than higher-income enrollees in the exchanges.

Three million people who would otherwise have been eligible for Medicaid are now expected to enter the exchanges. As a result, the CBO predicts premiums will be 2 percent higher nationwide in the exchanges. That’s a national average though – the increase will be even higher in the states that aren’t expanding Medicaid.

Lost savings due to uncompensated care

Uncompensated care is another significant factor that will result in higher premiums for insureds in states that do not expand Medicaid and thus continue to have a large uninsured population. In 2008, uncompensated care resulted in more than $6 billion in costs being shifted onto private health insurance carriers, who in turn pass those costs along to insureds in the form of higher premiums. Medicaid expansion was supposed to eliminate most of those costs, but that won’t happen in states that choose not to expand their Medicaid programs.

While state and local governments pay about 30 percent of the cost of uncompensated care, the federal government paid more than $11 billion in 2011 in Disproportionate Share Hospital (DSH) Allotments (extra Medicaid payments to hospitals that treat a large number of uninsured patients). DSH payments are mostly scheduled to be phased out by 2020 because Medicaid expansion was expected to eliminate much of the need for uncompensated care.

In states that do not expand Medicaid, there will still be plenty of uncompensated care, but very little in the way of DSH allotments to help cover the cost. Hospitals will pass the expenses on to state and local governments and private health insurance carriers, increasing premiums for everyone.

Will states change course?

The CBO predicts a wide range of decisions from the 25 states that have not yet opted to expand Medicaid. Some will likely work out modified arrangements with the federal government, allowing them to expand Medicaid up to 100 percent of poverty level, closing the coverage gap for people who currently earn too little money to qualify for exchange subsidies. Some may still choose full Medicaid expansion a few years down the road, and others might work out agreements to use federal Medicaid money to subsidize private health insurance for low-income residents.

States that continue to block any form of Medicaid expansion for their lowest-income residents will have to foot the bill for uncompensated care without the help of DSH payments, and their private health insurance markets will be less stable and have higher premiums for all enrollees.


Tags: health insurance premiums, Medicaid, premiums, private health insurance, red states, Louise Norris

About Louise Norris

Louise Norris

Louise Norris has been writing about health insurance and healthcare reform at The Colorado Health Insurance Insider since 2006.   She brings a broker's perspective to the healthcare reform discussion, as she and her husband started their health insurance agency, Insurance Shoppers, Inc., in 2003 and have spent…

All authors

Visit the authors page and find out who is behind all of the great content at healthinsurance.org™.

Latest Obamacare news & opinion

Health Wonk Review June 5 2014

Health Wonk Review for June 5, 2014

If you haven’t gotten your health policy fix, head over to Health Wonk Review –…

fix-obamacare

Looking beyond the botched ACA rollout

"People have given up on the repeal. There are very few people who want Congress to…

price responsive consumers

Figuring out how to put ‘skin in the game’

The studies indicate that people are very responsive to healthcare prices when they see…

Curbside Consult David Cutler

Can we ‘do the right thing’ profitably?

David Cutler was the author of a prescient and scathing 2010 analysis warning of the need…

obamacare-john-kline

Dem ad slays Obamacare-hating Republican

Of the nearly half a billion dollars that has been spent on political ads mentioning the…

health-wonk-review-may-22-2014

Health Wonk Review for May 22, 2014

Summer's here (at least it is where I am) and with it comes a summer-y edition of Health…

Sabrina Corlette health reform

Obamacare: Just what the doctor ordered?

In Part 2 of my conversation with Sabrina Corlette, we talk about whether the Affordable…

Health Wonk Review May - 2014

Health Wonk Review for May 8, 2014

Just a reminder that if you're still looking for some compelling health policy reading…

youth-enrolled-obamacare

‘Bros’ on board – and other promising signs

With 8 million Americans enrolled in Obamacare's exchanges – 28 percent of them young…

all posts

See all 379 blog posts.

Browse by date

Search within posts

Related terms

Medicaid

Medicaid is a health insurance program for low-income individuals and those with disabilities. Elderly low-income people are eligible…

private health insurance

Private health insurance – plans marketed by the private health insurance industry – currently dominates the U.S. health care…

Recent tweets @EyeOnInsurance

Wed Aug 27 19:18 2014 • reply • retweet • favorite

Wed Aug 27 19:03 2014 • reply • retweet • favorite

Wed Aug 27 13:40 2014 • reply • retweet • favorite