Editor’s note: The post below explains why Maryland has chosen to implement the Affordable Care Act’s Medicaid expansion. Watch Health Affairs Blog for an upcoming post explaining why South Carolina has decided not to implement the expansion.
On June 28, 2012, the U.S. Supreme Court upheld virtually all of the coverage provisions of the Affordable Care Act (ACA): health insurance exchanges will move forward, with advanceable tax credits provided to individuals between 138 and 400 percent of the federal poverty limit (FPL); insurance companies will be barred from discriminating against individuals on the basis of health status or pre-existing conditions; insurance carriers will follow community rating principles in the individual and small group markets to protect access to insurance; annual and lifetime limits will be prohibited; large employers will pay a penalty if too many of their employees abandon employer-sponsored insurance in favor of subsidized coverage in the exchange; and individuals must purchase insurance or pay a penalty (unless they qualify for a hardship exception).
The ACA’s broad coverage tapestry relied on Medicaid to extend coverage to all citizens below 138 percent of the FPL. The Supreme Court held that the ACA was unconstitutional to the extent it mandated states to expand Medicaid. The Court held that the federal government could not force states to expand Medicaid using the threat of removing all of a state’s existing federal Medicaid funds.
As a result, states now face a choice: expand Medicaid coverage to guarantee access to insurance for citizens at or below 138 percent of the FPL, just like all citizens above 138 percent soon will have guaranteed access to coverage, or leave a gaping hole in the ACA’s coverage tapestry that only the poorest among us will fall through.
In Maryland, we have decided to implement the Medicaid expansion.
Research just published in the New England Journal of Medicine demonstrates that expanded Medicaid coverage for low-income adults translates into a 6.1 percent reduction in mortality. This research adds to a large body of evidence showing that insurance is associated with reduced mortality. Saving lives is a compelling reason to move forward. Our Governor Martin O’Malley and Lt. Gov. Anthony Brown have placed a high priority on expanding coverage to hundreds of thousands of Maryland families and children since taking office.
Yet the public’s health is not the only reason behind Maryland’s decision. Our choice also reflects clear evidence that the Medicaid expansion in the Affordable Care Act will support Maryland’s economy and the state budget.
Expanding Medicaid will generate economic activity and jobs, save the state money, protect safety net and other health care providers; help lower all insurance premiums (including large employers’ premiums); create a continuum with our health insurance exchange, and improve individuals’ health outcomes through access to Medicaid coverage and care.
Most attention on Medicaid focuses on its impact on health; this post will focus on the other factors first.
Economic Development And Jobs
Lost in the debate about the ACA is the immense economic benefit the ACA will provide to states. In Maryland, The Hilltop Institute at the University of Maryland, Baltimore County (Hilltop) estimates that the Medicaid expansion alone will add about $2.5 billion in federal funds through the end of 2020. (See Exhibit 1, click to enlarge.)
In addition, the advanceable tax credits, worth an estimated $3.3 billion to Maryland’s economy from 2014-2020 — and worth $840 million in 2020 alone — also will pulse through Maryland’s economy. (See Exhibit 2, click to enlarge.)
All told, Hilltop estimates that the ACA will add nearly 27,000 new jobs in all sectors of Maryland’s economy by 2020, as the surge of new health care financing helps to grow industries ranging from construction firms building new medical office buildings to service sector workers running convenience stores, restaurants, and other small businesses. (See Exhibit 3, click to enlarge.)
Spurred by this economic activity, Maryland’s already better-than-average unemployment rate is expected to drop through the end of the decade, falling to 3.7 percent by 2020, compared to the projected unemployment rate of 4.3 percent in 2020 without the new jobs and opportunities created by the ACA. (See Exhibit 4, click to enlarge.)
In Maryland, the state savings are easy to see. During the O’Malley-Brown Administration, Maryland expanded the “Primary Adult Care” (PAC) program, using savings already generated under Maryland’s existing 1115 Medicaid waiver known as HealthChoice. The PAC program offers a limited benefit package to childless adults who are at or below 116 percent of the FPL. The benefit package includes primary care, prescription medications, and an array of outpatient behavioral health benefits related to mental illness and substance use disorders. PAC is financed through matched Medicaid funds at Maryland’s regular matching rate: 50 percent state contribution, matched with 50 percent federal financial participation (FFP).
Maryland now covers about 70,000 adults in PAC; the state’s share of this cost is about $100 million a year. Beginning on January 1, 2014, PAC will transition into a full Medicaid benefit package. In addition, because PAC is not considered to be insurance coverage under the ACA — given the lack of inpatient benefits, among other things — all the individuals now covered under PAC will qualify as a Medicaid expansion population, at 100 percent FFP, immediately saving Maryland $100 million per year.
Maryland did not casually, or just recently, analyze the cost-benefit effect of the ACA on the state budget. Hilltop first published a detailed econometric model of the fiscal impact of the ACA on the state budget in July 2010, only four months after passage of the ACA. Hilltop has regularly updated its analysis, most recently in June 2012.
Hilltop’s analysis shows that the simple conversion of PAC into a Medicaid expansion will save Maryland a total of $725 million through 2020. Moreover, after 2020, when the federal matching rate remains at 90 percent indefinitely, Maryland will save money on an ongoing basis due to the conversion of the 50-50 matched PAC program into the 90-10 matched Medicaid expansion. For example, in 2020, the first year of 90-10 matching, Maryland would be spending $135 million in state funds for PAC, but instead is expected to spend $95 million to fulfill the state’s 10 percent share of the expansion costs. This is a form of evergreen savings to Maryland, worth $40 million in 2020 alone. (See Exhibit 5, click to enlarge.)
More broadly, the fiscal impact analysis of the ACA’s effect on Maryland’s state budget shows overall state savings of $672 million, even after accounting for all the factors often cited by opponents of the Medicaid expansion: the “woodwork” effect of more individuals enrolling in Medicaid through existing eligibility categories at the state’s regular 50-50 match rate; the effect of slightly higher provider fees to enroll providers who will serve all of Maryland’s Medicaid eligibles (new and old); the fact that Maryland will need to start picking up a portion of the cost of the expansion population beginning in 2017; and the fact that Maryland’s Medicaid administrative costs will rise at the regular 50-50 match rate. Even after accounting for all of this, and more, Maryland will save money because of the ACA.
In other states, the savings might be harder to see, because most states do not have a program like PAC that will convert into immediate savings. In most states, the savings instead are more buried: in state and local taxes that support uncompensated care delivered by public hospitals; in avoidable public health spending on preventable infections and disease; and in the high insurance premiums paid by private payers — including state and local governments that furnish insurance coverage to employees, dependents, and retirees — due to the cost shift of uncompensated care into private insurance premiums. The fact that it is hard for other states to identify the state and local savings that the Medicaid expansion would produce does not mean the savings aren’t there.
Reducing Uncompensated Care Helps Lower Everyone’s Premiums
The savings go beyond the PAC program. The Medicaid expansion will significantly reduce hospital uncompensated care, which in turn will reduce the hidden cost shift to the premiums for private payers. Hilltop’s analysis shows that the ACA and health care reform expansion efforts will reduce hospital uncompensated care in Maryland by around $714 million a year by 2020, with a total reduction in uncompensated hospital care in the amount of $3.1 billion between 2014-2020.
While it’s true that Maryland’s all-payer hospital rate-setting system is unique in the manner in which Maryland distributes the burden of uncompensated care fairly across all payers, the conclusions are not unique to Maryland: expanding coverage to adults at or below 138 percent of the FPL will utilize federal Medicaid matching funds to reduce the financial burden of uncompensated care on all payers and premiums –- including large private employers, small groups and individuals purchasing through an exchange, state and local governments as payers, and also, in Maryland, Medicaid itself. That is, the reduction of uncompensated care will reduce the all-payer distribution of this cost for Medicaid itself, amounting to about $23 million for Medicaid in 2020. (See Exhibit 6, click to enlarge.)
Financing Directed To Other Sectors Of The Health Care Delivery System
The Medicaid expansion will support not only hospitals otherwise providing uncompensated care, but will also provide another financing source for the other sectors of the health care delivery system reflected in Medicaid’s benefit package, such as physicians, FQHCs, and pharmacies. (See Exhibit 7, click to enlarge.)
No Holes In The Coverage Safety Net
The ACA took a comprehensive approach to insurance coverage — creating exchanges, subsidizing insurance premiums for low-income workers, reforming underwriting and insurance market rules, creating new penalties so that individuals and employers participate in the insurance market, and expanding Medicaid.
The ACA’s coverage tapestry relies on Medicaid to cover all adults below 138 percent of the poverty line. Maryland will not leave a gaping hole in this coverage tapestry by excluding from coverage the poorest citizens among us. We are expanding Medicaid because it is the right thing to do.
One need not look far to see that, put simply, lives can change overnight when confronted with health care challenges. Heart attacks. Cancer. Traumatic accidents. Mental illness and addictions. Disabilities and chronic conditions. It is enough to worry whether you or a loved one will recover physically. No one should have to add to that the economic and emotional pressure of catastrophic health bills. Maryland believes that affordable health care should be treated as a fundamental right.
And based on our estimates, the Medicaid expansion will insure nearly 190,000 Maryland citizens in 2020: 143,000 through the expansion itself, and about 45,000 by enrolling currently eligible individuals. (See Exhibit 8, click to enlarge.)
Without the Medicaid expansion, fluctuations in income may force individuals to move between Medicaid, uninsured with no affordable health care option, PAC, and eligibility for advanceable tax credits in the Exchange. The constant disruption in coverage, in combination with access to only a limited benefit package or no benefits at all, would mean forcing 143,000 Maryland citizens to navigate a fragmented system; instead of receiving coverage, they would have to use hospital emergency rooms as primary care centers, cobble together help from shrinking public health programs, and/or do without health care.
The 143,000 Maryland citizens who will benefit from the Medicaid expansion will live longer as a result, and have better health status and health outcomes.
Medicaid expansion in the ACA is a hotly contested issue. Maryland crunched the numbers and found that, whether judged on economic grounds, personal costs, or in human terms, the conclusion is clear — implementation of the Medicaid expansion is the best choice for Maryland, our citizens, our economy, and our future.
Note: Analysis used in this blog entry often comes from two Hilltop documents: the “Maryland Health Care Reform Simulation Model: Detailed Analysis and Methodology” and the “Maryland Simulation Model Projections.”