The Medicaid Expansion will lower state spending growth?

On Monday, the Kaiser Family Foundation released its annual survey of Medicaid programs. Some of the top level findings are worthy of mention. In 2013, the rate of enrollment growth of Medicaid was 2.5%, which was the lowest in six years. This is likely due to the recovering economy, and further drops in unemployment levels. Total Medicaid spending increased 3.8% overall, which means that it grew more slowly than the cost of employer based private health insurance. The state-level share of Medicaid spending grew even more slowly, at 3.1%. Although some refuse to admit it, this runs counter to the argument that government will always be less efficient at everything. The survey also noted that almost across the board, states are creating new ways of paying for and delivering care in an attempt to improve quality and manage costs. The number of states with managed care initiatives or expansions is expected to jump from 28 in 2013 to 35 in 2014. Care coordination is similarly expected to become more common, from 25 states to 33 states. And initiatives specifically targeting dual eligible (poor seniors eligible for both Medicare and Medicaid) are expected to go from 4 states in 2013 to 17 states in 2014. This is especially important, because dual eligibles account for a significant amount of Medicaid spending. Ironically, even as states are trying to trim costs and manage spending, an improving economy has allowed them to restore some shuttered programs or increase reimbursement to providers. In 2013, forty states increased provider rates, including doctors, managed care organizations, and nursing homes, and that number is projected to rise to 44 states in 2014. In 2013, 24 states were about to restore cuts to home and community-based services, dental care, and behavioral health, or even expand them. Only 14 restricted them last year. Medicaid is about to enter a time of significant change, however. As it exists today, it covers about 66 million people in the United States, and is responsible for about 18% of all health care spending. The numbers of people it covers are about to significantly increase. Twenty-four states and the District of Columbia are planning to participate, with the other 26 either refusing to do so, or not yet committed. Even though a significant number of uninsured Americans reside in these non-participating states, changes will still be massive, as millions join the Medicaid rolls. It’s times like this that it’s important to remember that Medicaid is a state-based program, meaning that it’s not one big program, but 50 smaller ones. They have many differences, and those can matter. Participating in the expansion is one of the most obvious differences right now. And, as this report shows, that decision will have a major impact on state finances. Not, however, in the way you might expect. As the Center on Budget and Policy Priorities noted yesterday, states which expand the program expect their total spending to go up 13%, compared to 6.8% for those not expanding. That’s not surprising. Covering many more people will cost more money. What is surprising, though, is projected increases in state Medicaid spending. Those that expand the program, expect to see their share of Medicaid spending go up 4.4%, compared to 6.1% in states refusing to expand. How can this be?

The states expanding Medicaid reported to Kaiser that they expect to achieve savings in state-funded services such as mental health care, corrections-related health care, and uncompensated care that they now provide to uninsured individuals who will become newly eligible for Medicaid.  And, the federal government will pick up all the costs of covering these newly insured adults in 2014, including 100 percent of the costs of state-funded services they have received until now.