Catching up on some news from late last month, Wisconsin’s new Secretary of the Department of Health Services (DHS) testified at a January 26th hearing of the House Budget Committee, which is now chaired by Rep. Paul Ryan (R. WI). Smith, who served as the national Medicaid Director for nearly 8 years during the Bush administration, was one of four witnesses who testified about the fiscal impacts of the health care reform law (aka, the Affordable Care Act or ACA).
A Journal Sentinel article by Guy Boulton does a great job of examining the Secretary’s testimony and explaining that the ACA’s net effect on Medicaid spending in Wisconsin is likely to be quite positive. By my calculations, which are based on figures in the Secretary’s testimony and on a conversation with him, Wisconsin is likely to save well over $500 million from 2014 through 2019.There are many important points made in Smith’s testimony, including information about the size of the state’s Medicaid deficit. However, I think his testimony was confusing in its discussion of the costs and benefits of the ACA for Wisconsin. Although his written statement creates the impression that the state portion of Medicaid spending will grow significantly, a closer analysis of what he said, coupled with an understanding of the ACA, indicates that the law should yield a net savings for Wisconsin of at least $200 million from 2014 through 2019, and probably more than $500 million.
Most people listening to or reading the Secretary’s statement probably came away with the mistaken impression that it will significantly increase state spending for Medicaid and BadgerCare Plus in Wisconsin. That’s because he starts out with an estimate of the gross increase in state spending for expanded Medicaid coverage ($1.12 billion from 2014 through 2019) before accounting for several parts of the bill that are expected to offset the increased costs. After adjusting the gross cost for some of those offsets, Smith’s testimony says the state’s net cost increase will be $433 million from 2014 to 2019.
The chief problem with the $433 million figure is that it assumes that the state will pay 40 percent of the cost of the expanded coverage for childless adults, which clearly won’t be the case. In fact, it appears that the federal government will pay 100 percent of that cost (for childless adults below 133% of poverty) from 2014 through 2016, before that share gradually declines to 90 percent in 2019. The Secretary’s testimony acknowledges that the cost of serving that population will be offset by a higher federal share, and he said that savings could be “nearly $1 billion.” However, his testimony stopped short of indicating that a reduction of that magnitude in Wisconsin’s share of spending for childless adults would yield a net savings for the state of as much as $560 million.
The Secretary was kind enough to meet with me, as well as WCCF’s director, Ken Taylor, and our lobbyist, Sabrina Gentile. We talked with him about a wide range of topics, including his testimony, and he explained that there are questions about whether Wisconsin qualifies for the 100% federal funding for childless adults from 2014 through 2016. I agree with him that the most optimistic scenario isn’t a sure thing; yet even if one assumes that the law will be interpreted in a way that gives Wisconsin the lowest federal match rate for childless adult coverage, our state should enjoy a net savings from the ACA of well over $200 million.
Last fall the Doyle Administration said the ACA would save Wisconsin between $745 million and $940 million between 2014 and 2019. Based on Secretary Smith’s testimony, it appears that the new top estimate for saving during that six-year period falls short of the range previously estimated by DHS, but the projected savings are still substantial – and far different than the cost increase figures that got the top billing in the Secretary’s testimony.
We have posted on the WCCF website a December 12, 2010 Legislative Fiscal Bureau memo, which describes grant funding from the ACA and explains the DHS estimate of about $365 million of Medicaid cost savings during the three-year period from 2014 through 2016.
Jon Peacock
