Beginning in 2014, states could expand Medicaid coverage under the federal Affordable Care Act (ACA) and be completely reimbursed by the federal government for the incremental costs.
Currently, 31 states (including D.C.) have chosen to expand, with others considering doing so. Texas is not one of them.
About three years ago in the midst of the expansion debate, we released a study of the economic and fiscal effects for Texas of the Medicaid expansion decision. The hard data is now beginning to come in, and it is just as expected. States such as Texas which did not expand are spending more state funds for Medicaid and getting less coverage and health care for residents than states that chose to expand.
Health care needs do not simply go away because individuals do not have insurance coverage. When people are uninsured and cannot pay their bills, it leads to higher private insurance premiums and local taxes to cover the cost of providing uncompensated care. In addition, spending for health care generates an economic stimulus. Finally, when people have health insurance, morbidity and mortality are reduced, thereby increasing productivity.
In our 2012 study (which is available on our website at www.perrymangroup.com), we estimated the total economic benefits over the first ten years if Texas chose to expand Medicaid under the ACA. We looked at gains in business activity associated with health spending. We also looked at the cost of uncompensated care, which is currently borne by local governments (and, thus, local taxpayers) and privately insured persons (through higher premiums). If the cost of uncompensated care is reduced by expanding Medicaid coverage, more resources would be left in the hands of the private sector (both individuals and companies) to be used in other ways which generate economic benefits. Finally, we looked at the effects of having health insurance on morbidity and mortality, as well as productivity.
During the first ten years after implementation, we estimated that the total cumulative gross benefits to the Texas economy would include $270.0 billion (in 2012 dollars) in output (real gross product) and 3,174,640 person-years of employment. When multiplier effects are considered, we estimated that every $1 spent by the State returns $1.29 in dynamic State government revenue over the first 10 years of the expansion. In other words, participating in the expansion would not only improve access to health care, but would also more than pay for itself over time.
It has been two years since states could opt to expand Medicaid under the ACA, and the economic and fiscal effects are beginning to show. The Henry J. Kaiser Family Foundation’s Commission on Medicaid and the Uninsured (KCMU) commissioned a survey of Medicaid directors in all 50 states and the District of Columbia regarding Medicaid spending and enrollment.
As noted, for states that expand Medicaid under the ACA, the federal government pays 100 percent of Medicaid costs of those newly eligible for 2014-2016, 95 percent in 2017, and gradually down to 90 percebt in 2020 and thereafter. This rate is well above the typical federal reimbursement rates. In Texas, the federal reimbursement rate dropped from 58.7 percent to 58.1 percent, meaning that additional state spending was needed to maintain the current programs.
Not surprisingly, Medicaid enrollment and total spending growth in expansion states far exceeded growth in non-expansion states. However, given federal reimbursement, state general fund spending was only minimally affected. The Kaiser survey found that in the 29 states that had implemented the Medicaid expansion in FY 2015, state general fund spending on Medicaid increased on average by 3.4 percent (compared to total Medicaid spending growth of 17.7 percent). For the 22 non-expansion states, state general fund spending on Medicaid increased by 6.9 percent on average, slightly higher than total Medicaid spending growth of 6.1 percent.
The Kaiser survey also asked Medicaid directors in expansion states about budget effects outside the Medicaid program. The directors noted benefits such as savings in other programs, lower uncompensated care costs, savings to the criminal justice/corrections from reimbursement for care provided to eligible individuals admitted to an inpatient facility (not on jail or prison grounds), and higher provider tax revenues or general revenues.
Beyond the economic considerations, of course, is the enormous human cost of leaving millions of Texans with no way to pay for health care, as well as the immeasurable quality-of-life gains from a healthier and more stable citizenry. Neither Medicaid nor the ACA are perfect, but the relevant question is not philosophical, it’s practical.
The entire Medicaid system could benefit from an overhaul to make it more efficient and sustainable. The ACA has structural problems that probably have to be modified at some point. Even so, the Medicaid expansion within the ACA is a key aspect of the current health care environment in which Texas must function. From an economic perspective, Texas should have participated in Medicaid expansion under the Affordable Care Act all along. By refusing, Texas has had to spend more State funds to maintain current programs, not to mention forgoing a chance to improve access to much-needed health care for hundreds of thousands of Texans, reduce the burdens on providers and local taxpayers, reduce pressure on private insurance premiums, and enhance State revenue through dynamic multiplier effects.