Medicaid Expansion Update

On Thursday, the Pennsylvania Health Access Network and Families USA issued a report on the economics of Medicaid expansion in Pennsylvania. The report and the reaction of Governor Corbett's spokesperson address some previously unanswered questions.

The cost of Medicaid expansion. The Governor estimated that Medicaid expansion would cost PA $4.1 billion over 10 years while the nonpartisan Kaiser Family Foundation put the cost at $2.8 billion. Department of Public Welfare spokesperson Anne Bale stated three items that went into the Governor's estimate.

• Staffing and administrative costs to serve 800,000 new Medicaid recipients.
• The woodwork effect: This refers to the possibility that people currently eligible for Medicaid in PA who have not signed up will do so because of the publicity surrounding Medicaid expansion and the individual mandate requiring everyone to have health insurance. If their income is below 46% of the Federal poverty level, the state would have to cover 46% of their Medicaid costs. However, the woodwork effect will occur regardless of whether PA expands Medicaid and should not be counted as a cost of expansion.
• The possibility that people currently eligible for Medicaid but who have either private insurance or are insured through their employer might drop that coverage in favor of Medicaid. However, in order for PA to be responsible for 46% of their costs, they would have to be making less than 46% of the poverty level. How many Pennsylvanians who are that poor have private insurance or are insured through an employer?

The "flexibility" issue. The Governor has stated that he opposes Medicaid expansion because it does not afford PA the flexibility it needs to design a Medicaid system that is financially sustainable, and that he would like Medicaid to include incentives for recipients to seek employment. I previously speculated that he might want PA to provide less coverage than required by the Affordable Care Act, or to place some time limit on coverage.

On Wednesday, Florida's Governor Rick Scott accepted Medicaid expansion after negotiating an agreement with the Feds to allow Florida to privatize Medicaid by placing recipients in private, for-profit HMOs and managed care plans. This plan could, in theory, cut costs by reducing the incentive for unnecessary medical treatments. Florida has already embarked on a pilot program of Medicaid privatization. It has not yet been evaluated, but it is said to be filled with exactly the kinds of problems that already plague for-profit health insurance:

Critics worry for-profit providers are scrimping on patient care and denying medical services to increase profits. Some doctors have dropped out of the pilot program, complaining of red tape and that the insurers deny the tests and medicine they prescribe. Patients have complained they struggled to get doctor's appointments.

Gov. Scott's agreement with the Feds requires that the program be evaluated in real time.

Given Governor Corbett's devotion to privatization, it seems possible that he is negotiating to bring a similar disaster to PA's working poor. We might at least want to be aware of that possibility.

The Families USA report allows us to give better answers to two financial questions about Medicaid expansion in PA.

How much is Medicaid expansion actually worth to PA's economy? I previously indicated that PA will receive $37.8 billion in health insurance from the Federal government over ten years, and that this money will benefit the economy. Families USA hired Regional Economic Model, Inc., an economic think tank, to estimate the direct and indirect effects of this cash infusion in a target year, 2016. Direct effects would be new money spent on health care. Indirect effects would be items like the construction of new hospital facilities or the money spent by new health care workers on groceries and entertainment—the so-called multiplier effect. The estimate was that these federal dollars would support 41,200 new jobs in 2016. They also estimated that the $3.3 billion in additional health care spending that would occur in 2016 would, through the multiplier effect, bring $5.1 billion additional economic activity to PA in that year. Some of this money would come to the state in the form of additional taxes.

What is the financial cost of not expanding Medicaid, and who would bear it? As you know, hospitals must treat people without health insurance (“forced charity”) and that someone must pay for this uncompensated care. The report gives the following estimates of how this uncompensated care will be distributed between 2013 and 2022.

• $878 million will be paid by state and local governments, and ultimately by taxpayers.
• $891 million will be absorbed by hospitals and medical facilities.
• $1017 million will be added to the cost of health insurance paid by Pennsylvanians who have private insurance.

None of these things matter as much as the 4000 lives per year that would be saved by Medicaid expansion. However, it's possible that the Governor and his cronies will find these economic arguments more persuasive.

You may also be interested in reading:

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 1)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 2)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 3)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 4)