The task force had cause for concern. Between 2000 and 2012, Medicaid enrollment grew by a staggering 70 percent and expenditures by 122 percent. Future projections suggest that Medicaid will grow by 6.6 percent annually -- even without the rollout of the Affordable Care Act (ACA) in 2014. That growth would be well beyond expected increases in state revenues.
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States hesitating to expand Medicaid under the ACA have their eyes on these numbers, but fiscal pressure from Medicaid may not be the entire story. States that already have a generous Medicaid program are poised to win outright from health-care reform. Under the ACA, states can choose to expand Medicaid to adults 19 to 64 years of age and up to 138 percent of the poverty level. The federal government will reimburse states 100 percent for this new population from 2014 through 2016, phasing down to a 90 percent federal match by 2020. This rate compares quite favorably to the current Medicaid matching rates of between 50 and 73 percent. States such as New York, Massachusetts and Vermont can now shift segments of their current Medicaid population into the expansion program, and the federal government will cover health expenses at a higher matching rate. This story is somewhat complicated by a phase-in period for the higher matching rate for some populations and the potential to transition selected groups to health insurance exchanges. But the logic of savings from intergovernmental cost shifting is the same. The Urban Institute estimates that eight states are in this category.
States also stand to win in more unexpected ways. State and local governments currently spend billions on a patchwork quilt of services that provide health care to the uninsured. These services include an assortment of selective insurance programs, cash assistance to hospitals, direct funding for clinical public health services, and funding for more than 11,000 mental health and substance abuse treatment providers. This tally doesn’t even count the billions of dollars spent on state and local services that are on the receiving end of the health system’s failures, such as the impact of the mentally ill in state prisons and jails.
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Savings from programs outside of Medicaid-proper may be substantial. A study by the Wyoming Department of Health found that the savings in its mental health and substance abuse system alone would offset 80 percent of the increased costs from Medicaid over a seven-year period; a Virginia study found $70 million to $80 million in savings from annual state payments to university hospitals for indigent care. Idaho has a catastrophic health coverage program for the uninsured that can be almost entirely eliminated under health-care reform. These estimated savings will cover more than half of the costs of the Medicaid expansion.
The criminal justice system also is an area of potential savings both direct and indirect. An Ohio report estimated that almost all of the state’s inpatient medical services for inmates could be covered under the Medicaid expansion, saving $30 million annually. States might also see some savings in substance abuse treatment administered through probation, parole and drug court programs, as well as substantial indirect savings as state prisons and jails are no longer the mental health provider of last resort.
Many studies are popping up across the country that show that the ACA will end up saving states more than it will cost. While it is wise to be cautious about such claims, when assessing the impact of health-care reform, states and local governments should look beyond the health-care sector. The possibility that health-care reform will transform services across state budgets is quite real.
