By Parker Bolt

February 2014

In New Hampshire, the state’s Medicaid program is designed for parents, children, elderly and the disabled who meet certain financial guidelines. Every year, the state spends 39% ($2.1 billion) of its state budget on healthcare and social services, of which $700 million state funds go to Medicaid.  In comparison, California spends only 33% of its budget providing the same services with a population 29 times bigger than New Hampshire. California provides Medicaid for approximately 30% (6.8 million people) of its population[1], while N.H. provides for around 10% (137,000 participants) of its population.[2]

The Cost of Expansion:

To fully expand Medicaid in NH according to the Affordable Care Act, over seven years it would cost the state an additional $85 million dollars, but it is critical to break down this number on a yearly basis. The first two years save New Hampshire $10 million; this is the period that the Federal government pays 100% of Medicaid costs. After this though, the state first pays 5%, then 10% of the cost. Year six will cost New Hampshire $27 million, and when N.H. settles into its 10% share of the pay in year seven, the cost will be at least $40 million annually[3]. Conversely, if Medicaid is not expanded, over seven years, New Hampshire’s Medicaid costs would be reduced by $65 million-a swing of $150 million. It may not sound like a big increase but considering how much N.H. already spends on Medicaid as a percentage of its annual operating budget (which is 13%), $85 million is quite a large sum. The first 5 years are designed to entice a state into expansion, with savings for the first two years or so, gradually increasing a state’s share to 10% in the seventh year. Looking beyond seven years, the $40 million yearly cost is not simply a onetime expense but a permanent annual increase.

Lessons from Arizona and Maine:

A number of states have previously expanded Medicaid, but Arizona’s and Maine’s expansions are of particular interest because they expanded to the same population of childless adults that Medicaid expansion under the ACA seeks to cover. (Arizona and Maine expanded to 100% of Federal Poverty Level (FPL)[4] while ACA expansion covers up to 138% of FPL.)

When Arizona decided to expand Medicaid in 2000, it estimated that it would cost $2 billion based upon an estimated number of additional enrollees over a ten year period. In 2010, Arizona expected 47,000 parents to enroll; instead, 150,000 enrolled. They also estimated 75,000 childless adults to enroll in the same year, instead 206,000 enrolled[5]. Expansion cost $8.4 billion, just between 2002 and 2008 alone. Childless adults, who are a large part of the population that would be eligible, cost between two and four times as much as parents and children. All of this occurred, even though Arizona also only raised the Medicaid eligibility level to 100% of the FPL as opposed to 138% current proposed.

Arizona spent four times the originally estimated cost and received three times the estimated enrollment, yet the number of uninsured did not drop from pre-expansion levels. In fact, from 2005 to 2010 the number of uninsured actually increased[6]. However, the percentage of the population covered by private insurance sank from 62% in 2002, to 56% in 2010; while Medicaid coverage increased from 13% to 20%.

Similarly, after expansion, Maine’s percentage of population on private insurance dropped from 66% in 2002 to 59% by 2010, while Medicaid rose, and the uninsured stayed at its 2002 levels. Maine’s budget could not sustain the number of Medicaid enrollees, and there are 24,000 people on a waiting list for coverage under the program. Both Maine and Arizona saw a 7 percentage point decrease in coverage by private insurance, and a corresponding 7% percentage point increase in Medicaid. This means that the increase in Medicaid enrollments came from individuals who dropped private insurance and switched to Medicaid, not from the ranks of the uninsured. This phenomenon is referred to as the “Crowd Out Effect.” Of course, the intended purpose of Medicaid expansion is to provide coverage for the uninsured, not to shift people off of private coverage and onto government coverage.

Some argue that if the rate of uninsured by decreased even a single percentage point, then the cost would be worth it, however, in neither Arizona nor Maine did the uninsured decline. Both states independently expanded Medicaid, with the virtuous goal of expanding coverage to the uninsured population, yet both greatly underestimated the cost and were rewarded with a 7% percentage point decrease in the privately insured and no change in the rate of uninsured.

Conclusions:

There are four main points for New Hampshire legislators should ponder when assessing whether to expand Medicaid. First, the cost to New Hampshire must be considered by looking at year seven and beyond and by planning for increased costs due to Crowd Out. The best method to do this is to measure the increased costs and enrollments in Arizona and Maine and to increase our projections accordingly. Secondly, the problem of Crowd Out needs mitigated. Third, what if Medicaid Expansion proves to be unsuccessful? Once the government has promised people access to Medicaid, they cannot in good faith deny them. In practice repealing or scaling-back Medicaid expansion in a state is near impossible, hence we should consider Medicaid expansion permanent. Fourth, can Medicaid Expansion even accomplish its goal? Arizona and Maine did not expand as far as the ACA requirements, and still they encountered greatly increased costs with no drop in the rate of uninsured to show for it. Given the results in Arizona and Maine, the Expanded Medicaid does not accomplish its goal.



[1]Medicaid.gov.  http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/california.html

[2]Medicaid.gov. http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/new-hampshire.html

[3]Lewin Group. An evaluation of the impact of Medicaid expansion n New Hampshire. http://www.lewin.com/~/media/Lewin/Site_Sections/Publications/NHMedicaid%20Expansion.pdf

[4] Federal Poverty Level is $19,530 a year for a household of three, this is the 2013 level

[5]Medicaid Cure: Policy Brief #3. March 11,2013. Medicaid expansion: We already know how this story ends. http://www.medicaidcure.org/wp-content/uploads/2013/03/Medicaid-Expansion-We-Already-Know-How-the-Story-Ends-Medicaid-Cure-Policy-Brief-31.pdf

[6] Medicaid Cure: Policy Brief #3. March 11,2013. Medicaid expansion: We already know how this story ends. http://www.medicaidcure.org/wp-content/uploads/2013/03/Medicaid-Expansion-We-Already-Know-How-the-Story-Ends-Medicaid-Cure-Policy-Brief-31.pdf

 

 

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