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Feds confirm higher-than-expected Medicaid expansion costs

By   /   July 29, 2016  /   News  /   No Comments

Six years after the 2010 health care overhaul became law, Florida has yet to embrace one of the law’s core features: Medicaid expansion.

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EXPANSION: The costs of expanding Medicaid under the Affordable Care Act are more expensive than previously expected.

Citing exorbitant costs, among other reasons, Republican Gov. Rick Scott and legislative leaders have resisted federal funding temptations to expand the joint federal-state health insurance program.

It’s no small feat. Turning away an estimated $17 billion in “free” funding, to-date, has come amid intense public pressure.

Newspaper editorial boards, public interest groups and others have expressed strong moral sentiments for helping the uninsured through Medicaid. Scott himself initially sided with expansion advocates before firmly planting against it.

Powerful health and business interests also want the expansion, and they’ve lined up to share in the taxpayer largesse.

The Florida Medical Association, which represents more than 20,000 physicians, endorsed it with the caveat that Medicaid reimbursement rates had to increase to attract more doctors.

The Florida Hospital Association said the billions of federal dollars would create more hospital jobs and plug hospital financial gaps.

Business groups and chambers of commerce were among the biggest supporters during last year’s failed legislative attempt to expand the program. A coalition of interested parties banded together under the banner “A Healthy Florida Works,” and a number of labor unions have sided with social advocacy groups in support.

But new government findings validate Scott’s cost concerns.

According to the U.S. Department of Health and Human Services, Medicaid expansion costs are much higher than predicted — not that HHS has been eager to share that information.

Brian Blase, a senior research fellow at the Mercatus Center at George Mason University, reviewed the department’s latest actuarial report and found that Medicaid expansion enrollees cost an average of $6,366 in fiscal year 2015 — 49 percent higher than the $4,281 the department projected in 2014,  the first year of federal funding for the expansion.

“The magnitude of HHS’s error reveals a major flaw in the government’s ability to estimate the Affordable Care Act’s costs, and worse, that the actual costs of the ACA’s Medicaid expansion appear much higher than expected,” Blase concluded.

The discrepancy stems from a logical consequence of the Obama administration’s commitment to the federal government paying 100 percent of Medicaid expansion costs through 2016 — the chief financial lure to persuading skeptical state governments.

Rather than paying costs similar to those of pre-ACA Medicaid enrollees, states that expanded the program opted to set “outrageously high” capitation rates, or the capped rates paid by the government to Medicaid insurers.

Under the HHS capitation model, the Centers for Medicare and Medicaid Services, a state and a health plan enter into a three-way contract. The arrangement is designed to manage costs, but the funding windfall enticed states to spread the wealth.

Governors look generous, more people obtain health coverage and interest groups get paid.

It’s remarkable that Florida and 18 other holdout states have resisted.

Since the government typically pays the full costs of capped Medicaid services, the higher rates have led to low-risk profits for insurance companies. The health care providers they reimburse, such as doctors and hospitals, also benefit.

It’s a lucrative alternative to the failing state-based health exchanges where insurance companies are forced to float risky insurance pools. In the government-backed Medicaid model, it makes no difference to an insurer how sick or risky an eligible enrollee may be as cost uncertainties are all but eliminated.

Thirty-two states and the District of Columbia have expanded Medicaid under the law. Expanded coverage extends to those without health insurance, including single men without children, earning up to 138 percent of the federal poverty level – $16,243 for an individual and $33,465 for a family of four in 2015.

Up to 1 million uninsured Floridians could benefit from the expanded program — and that’s big business.

The 100 percent funding guarantee would have started in Florida in 2014, and continued for three years. Over a decade, the Kaiser Family Foundation estimated that Florida could have pocketed up to $51 billion.

Medicaid already represents about 90 percent of Florida’s current $29 billion health care expenditures, which are 35 percent of Florida’s 2016-17 state budget. Florida pays about 40 percent of its Medicaid costs while the federal government picks up the remaining 60 percent.

Federal Medicaid expansion funding is set to decrease to 90 percent by 2020, leaving states to pick up the rest. How states will maintain the higher payment rates when the funding dries up is anyone’s guess.

The 10 percent difference is significant considering Medicaid is a top budget item for states. It’s potentially catastrophic in light of the newly revealed higher-than-expected costs.

HHS predicted savings of up to 30 percent for new Medicaid expansion enrollees, according to Blase.

“HHS now projects that the newly eligible adult Medicaid enrollees will cost about 23-percent more than the previously eligible Medicaid enrollees in fiscal year 2015,” he said.

The Legislature and the governor can agree to expand Medicaid at any time. Scott called for a special legislative session last year to address the issue, but House leaders prevailed over a Senate proposal to accept the federal funding. This year, any attempt to address it was virtually dead-on-arrival.

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William Patrick is Watchdog.org’s Florida reporter. His work has been featured by Fox News, the Drudge Report, and Townhall.com, as well as other national news and opinion websites. He’s also been cited and reposted by numerous state news organizations, including Florida Trend, Sunshine State News and the Miami Herald, and is a member of Investigative Reporters and Editors and the Florida Press Association. William’s work has impacted discussions on education, privacy, criminal justice reform, and government and corporate accountability. Prior to joining Watchdog, William worked for the James Madison Institute in Tallahassee, Fla. There, he launched a legislative news website covering state economic issues. After leaving New York City in 2010, William worked for the Florida Attorney General’s Office where he assisted state attorneys general in prosecuting Medicaid Fraud. William graduated magna cum laude from Hunter College, City University of New York. He lives in Tallahassee with his wife and three young children.