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Some States Still Crunching the Numbers on Medicaid Expansion

By Caitlin McGlade, CQ Staff

November 30, 3012 -- It's state budget submission season for governors, and as they struggle with whether to expand their Medicaid programs under the health care law, some policy experts recently said that each state leader is crunching the numbers and trying to decide what makes the most financial sense.

At a panel discussion hosted by the Alliance for Health Reform, much discussion centered around a report by the Kaiser Commission on Medicaid and the Uninsured that calculated state savings at just $8 billion collectively if all of them decided to forgo expansion.

But Krista Drobac, director of the health division at the National Governor's Association Center for Best Practices, said the governors have not had any reaction, at least publicly, to the Kaiser study, which was by John Holahan, a researcher with the Urban Institute.

Some are wondering whether their states could just partly expand, while others are curious if they could expand later. Some have wondered what the effects would be if they reduced eligibility after expanding.

Many are particularly worried about how concrete the 90 percent reimbursement federal officials promise would be after a few years and in subsequent Congresses. When states first expand, the federal government will pay 100 percent of the costs for new enrollees. That contribution will be phased down to 90 percent.

"It's weighing hugely in the minds of state officials—when you look at the numbers that John presented and say to yourself, 'Well this looks like a good deal,' state officials say to themselves, 'Well what if we get wrapped up in deficit reduction and the costs shift to the state so that 90 percent match, in three years, becomes 75?' " Drobac said.

Another question on the table is how areas with few providers would handle a surge in Medicaid users. In many cases, regions home to high proportions of uninsured have the fewest provider options, she said.

Mississippi—which has already tossed out the prospect of expansion—is one of these cases. If the state were to expand its Medicaid program, it would potentially have 310,000 new enrollees, bringing its number of Medicaid recipients to more than 1 million people. The state leads the country in poverty, adult obesity, teen birth rates, infant mortality and traffic deaths. It comes in second for hypertension and inactivity and third in diabetes and cancer mortality. Mississippi comes in last when it comes to physicians per capita.

But James Keeton, dean of the School of Medicine at the University of Mississippi Medical Center, said last week that hospitals are going to be in trouble if the state opts out of Medicaid expansion.

Fourteen percent of the patients his system treats are uninsured.

"So I go talk to civic groups and I say to the civic groups, how would you like to run a company where you give away 14 percent of your business?" Keeton said. "That's what we do."

Federal Medicaid Disproportionate Share Hospital funding is available to cover these types of situations, but the health care overhaul is phasing out such payments because, in theory, the law should reduce the number of uninsured people and the need for hospitals to pay for such patients.

Medicaid expansion or not, Keeton figures, the state would lose the disproportionate share payments. Without insuring more people, the hospitals might have to pay more out of pocket eventually. Keeton expects the small hospitals to start talking to their state senators and representatives in January about "going into the red" and the implications that would have as a large employer in their areas.

"And that's when the rubber will hit the road," Keeton said.

The health care overhaul originally had mandated that all states expand their Medicaid programs to cover those who are within 138 percent of the federal poverty line, and pledged to withhold Medicaid funding to states that didn't comply. But in June the Supreme Court said states could opt out of the Medicaid expansion without losing their other Medicaid reimbursements.

Some states, such as New York and Delaware, are poised to save money with the health care overhaul's Medicaid expansion provision, while others, such as Mississippi, say the program would cost too much.

"Expenditures related to health care are crowding other state expenditures, and the governors have just come out of an extremely intense time period where they had to find savings in all of their programs," Drobac said. "It's coming at a time when its fresh in their minds how much Medicaid costs."

She pointed to a chart delineating that K-12 education spending, as a share of total state spending, dropped from 22 percent to 20 percent from 2008 to 2011. During that same period, Medicaid spending rose to 23.5 percent from 20.5 percent.

"When they think about these things, they're thinking about the trade-offs," Drobac said. "So, what other parts of our budgets are potentially crowded out by increased Medicaid costs?"

Holohan's findings showed that states will be paying more than in previous years regardless of whether they expand Medicaid. Much of this would be driven by the slew of people who discover they had already been eligible, largely because of increased publicity, and sign up for Medicaid to comply with the health insurance mandate.

"It's just hard for me to imagine that states can not adopt this after a certain period of time," Holahan said. "Because with the pressure of hospitals, business communities and just a lot of people saying 'Why are we giving up all this money while our taxpayers are paying federal taxes, which are going out to people in other states?'"

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