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States Expanding Medicaid Saw Costs Rise Less Than Non-Expansion States, Analysis Shows

By Rebecca Adams, CQ HealthBeat Associate Editor

October 14, 2014 -- States that opted not to expand Medicaid under the health law will experience more spending growth this year than states that are growing the program, according to an analysis by the nonpartisan Kaiser Family Foundation.

The state-by-state findings were presented at a briefing last week during which Medicaid directors spoke about their experiences implementing the law and other significant changes in the federal-state health program for the poor.

"Clearly we are in a new era," said Diane Rowland, executive director of the foundation's Kaiser Commission on Medicaid and the Uninsured.

The health care law (PL 111-148, PL 111-152) allows states to broaden eligibility in Medicaid for people with income of up to 138 percent of the federal poverty level. GOP governors and legislators in 23 states have refused to so far, citing concerns that such an expansion will be unaffordable. But the report shows that states that chose not to expand are projected to see a 6.8 percent increase in the amount of state taxpayer dollars that support Medicaid in fiscal 2015. States expanding the program will only see a 4.4 percent rise in state spending. So far, 27 states and the District of Columbia have expanded Medicaid.

The spending growth in non-expansion states will come even though enrollment is expected to grow at much lower rates than in expansion states. The number of people enrolled in non-expansion states is likely to go up by 5.2 percent, compared to 18 percent in expansion states in fiscal 2015.

The findings are partly explained by the higher federal matching rates for states that broaden eligibility. The Centers for Medicare and Medicaid Services is paying all of the costs of covering newly-eligible individuals who qualify because of expansion through 2016. That higher matching rate will phase down until it is 90 percent of the costs in 2020 and beyond.

The federal government pays lower matching rates for people who qualify under the old eligibility rules for traditional Medicaid. In the current fiscal year, the federal government is picking up 50 percent to almost 73.6 percent of costs for people who qualify under the rules in place before the health law was enacted.

Some states that previously got lower matching rates for beneficiaries with limited benefits have shifted the cost to the federal government, which is picking up all the costs for those individuals.

With the federal government taking care of most of the costs, total spending in states that expanded will jump by 18.3 percent while total spending in states that did not expand is projected to go up by 6.5 percent.

There was less of a gap during states' fiscal 2014. Then, expansion states saw slightly higher spending growth increases. These states experienced a 6.6 percent increase in their budget spending while total federal and state spending on the program in the expansion states rose 13.1 percent.

States that did not broaden eligibility saw their state Medicaid costs rise by 6.1 percent while total spending in the states rose 5.6 percent.

Republicans concerned about the rising total costs say the federal government may not keep its promise of the 90 percent match in the law.

Even GOP governors who want to expand Medicaid may face a challenge convincing fellow Republicans to go along. Darin Gordon, the director of the Tennessee Medicaid program TennCare, said at a recent forum that his state legislature and the Obama administration have differing perspectives on the specifics of an expansion plan.
Because of the need to address a multitude of issues and perspectives, Gordon said, "it's not an easy process."

Virginia Medicaid director Cindi B. Jones said that Democratic Gov. Terry McAuliffe "spends every waking hour" thinking about how to achieve expansion in the state. State officials have presented a variety of ideas to lawmakers, she said, but all were rejected.

"We keep forgetting it's just politics," she said.

After the briefing, Jones predicted that Virginia legislators might change their minds in 2016 or 2017, when hospital reimbursement cuts deepen and fiscal pressures increase.

Before then, expansion is unlikely, she suggested, although state officials will keep pushing for it. "I don't think the governor sees it [happening] either, although he hates to give up," she said.

Other findings in the Kaiser report show that:

  • Across all states, total Medicaid spending grew by an average of 10.2 percent in state fiscal 2014, the year that ended on June 30 in most states. Total Medicaid spending in fiscal 2015 is expected to rise by 14.3 percent on average.
  • Officials in about three-fourths of states said they do not expect a shortfall in state Medicaid budgets.
  • Experimentation in delivery system changes is widespread. Thirty states added or expanded a delivery system reform in fiscal 2014, while 40 states plan to do so in fiscal 2015. Those changes included putting patients in health homes or patient-centered medical homes that coordinate care, the integration of Medicaid and Medicare benefits for people who are eligible for both programs and the use of accountable care organizations that give providers incentives to collaborate.
  • Thirty-one states reported expanding Medicaid eligibility in fiscal 2014, including effects beyond the health law. Nine states reported they will expand eligibility in fiscal 2015.
  • Only four states—Arkansas, Indiana, Louisiana and Maine—cut back on eligibility in fiscal 2014 and none planned to do so in fiscal 2015.
  • Twenty-one states expanded benefits in fiscal 2014 while four scaled back benefits. In fiscal 2015, 22 states expanded benefits compared to two states that reduced benefits.
  • State officials were concerned about the expiration of higher federal payments for primary care doctors on Dec. 31. About one-third of states said they would continue payments that are higher than the historical average for primary care, while one-third said they would not and another third said they were unsure.
  • States continued to expand their reliance on managed care to coordinate Medicaid benefits. Thirty-three states expanded managed care in either fiscal 2014 or fiscal 2015.
  • Most states expressed concern about high-cost specialty drugs, especially Gilead Sciences Inc.'s hepatitis C drug Sovaldi, which the Food and Drug Administration approved in December.
  • Forty-seven states in fiscal 2015 expanded the use of community-based long term care, reducing the number of people who were institutionalized.

"It's a time of historic change," said long-time Medicaid consultant Vern Smith, managing principal with Health Management Associates, who helped Kaiser produce the report.

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