The SCOTUS Medicaid Ruling: Part II

So, a couple days ago we detailed the legitimacy and coherence of the Supreme Court ruling on the Medicaid expansion portion of the Affordable Care Act, and decided that the ruling was probably just a bit intellectually dishonest and politically motivated. If you are interested in that aspect of the decision, click on through and give it a read. Today, however, we move on to the practical effects of the decision.

As you may recall, the original version of the ACA required all fifty states to raise their Medicaid eligibility threshold to (at minimum) 133% of the poverty level in order to form the lower bound of a universal coverage scheme. States refusing to expand the program to meet this minimum would be stripped of all Medicaid funding, leaving them with an expanded indigent uninsured population, and losing the federal funding for insuring this population that averages about 57% of expenditures. States filed suit arguing that this was an unduly coercive gun to their head, and the court agreed.

So now the new scheme is that while states refusing the federal mandate can be prohibited from accepting new Medicaid funds under the ACA, refusal to expand cannot exclude them from any existing funding which they receive. As a result, citing budget concerns, no less than seven GOP governors have indicated they will refuse to expand or accept federal funds, and as many as seven other governors (including Democrat Jay Nixon of Missouri) have indicated they are resistant but on the fence. There is no question that state budgets are strapped as a result of rising pension obligations and falling revenue secondary to the financial crisis and ensuing recession. The questions I want to ask today is, "does the proposed Medicaid expansion present a net deficit or surplus to state budgets when compared to current policy?"

The first thing we have to identify to ask this question is, "what do states currently spend on so-called 'uncompensated care' that occurs at public and private medical centers in their territory?" The most recent numbers available (2004, sorry) show that the nationwide cost of uncompensated care was about $34.6 billion, with the federal government picking up about 58% of these costs through Medicare and Medicaid, and private actors picking up about 15%. This leaves the states with about 27% of the national uncompensated health care costs, or about $11 billion per year. This situation has almost certainly deteriorated since 2004, what with the depression and all.

The next thing we have to figure out is, "what exactly are the terms of the Medicaid expansion." Here, we discover that the ACA provides an obscenely generous portion of the funding for the expansion. Turns out that the federal government will cover 100% of the additional cost of the expansion until 2020, and a further 90% of the cost from that point forward. States automatically save $11 billion per year (2004 dollars) on uncompensated care, and are reimbursed 100% for the first six years (the coverage starts in 2014) and 90% thereafter. This works out to a $66 billion upfront savings for state governments without even doing any math. With that information alone, it's hard to imagine this expansion wouldn't be a net benefit for state balance sheets. But you gotta figure someone worked out the numbers, so let's do this the right way.

There are basically two places to look for this information, a Council of Economic Advisers study from 2009 and an Urban Institute study from 2011. The CEA study investigated uncompensated costs and projected Medicaid expansion savings in sixteen states and found the expansion led to decreases in state budget costs in all sixteen, whereas the Urban Institute study, using a stricter methodology for identifying savings, still found that 21 states would see positive impacts on their budget, even after 2020. The study found that Wisconsin could save as much as $3.7 billion, Iowa $1.9 billion, South Carolina $678 million, Indiana $1.7 billion, and $443 million in Nevada, all from the period 2014-2019. Incidentally, excluding Indiana, these are all states where governors have indicated they either won't accept new funds or are leaning against it.

So in the final analysis, it appears that state governors are "shafting," in the words of the Washington Post's Greg Sargent, their taxpayers in order to appear sufficiently anti-Obama. In all likelihood, budget constraints combined with intense lobbying from hospitals will force the hand of GOP governors, or over time they will be defeated and Democratic governors will elect to expand the program. This is the process, over time, that occurred with other Medicaid and SCHIP expansions. You wouldn't know it to listen to Rick Scott, though.