Medicaid Opportunity in Health Care Reform Would Offset Other Costs

An updated analysis released last week by the Urban Institute estimates that Wisconsin will save $248 million over the next ten years if the state uses the Medicaid option in the Affordable Care Act (ACA) to close the gap in BadgerCare coverage for adults who aren’t custodial parents. Although the report isn’t a substitute for a more Wisconsin-specific analysis by the Legislative Fiscal Bureau, it helps illustrate that Wisconsin could be one of the most significant beneficiaries of the Medicaid option.

The anticipated savings would offset a portion of the growth in state costs from increased enrollment among already-eligible adults, resulting from other aspects of the new law. Regardless of whether Wisconsin closes the gap in BadgerCare, program participation will grow because of the individual mandate and the new portals that will accept applications for coverage and will direct people to either Medicaid or the new health insurance exchanges and subsidies. The report estimates that the state’s share of spending for Medicaid and BadgerCare participation is expected to grow by $725 million (1.8%) from 2012-22, when one looks at the combined enrollment effect of all the changes from the law (required and optional).

In other words, although spending for Medicaid and BadgerCare is projected to increase by an average of $72.5 million per year over the next decade, that’s about $25 million per year less than the increase would be if the state rejects the option of closing the BadgerCare gap. The main reason that approving the optional expansion is less expensive than rejecting it is because the federal government would pay a larger share of the current costs for most of the non-caretaker adults in the BadgerCare Core Plan.The report by the Urban Institute and Kaiser Foundation assumes that Wisconsin will be treated like other states that don’t currently provide Medicaid coverage for non-caretaker adults, which would mean that federal funding would pay all of the costs for those adults below 138% of the poverty level during the period 2014-2016, and a minimum of 90% of their costs in subsequent years. The reason for that assumption is that the current BadgerCare Core coverage falls short of normal Medicaid coverage. (Read more about that in this Nov. 29 letter from the Public Policy Institute.)   Although federal regulations have yet to confirm that interpretation, under any plausible reading of the federal law Wisconsin will spend considerably less for the childless adults currently enrolled in the BadgerCare Core Plan.

The study’s findings are very important for Wisconsin policymakers, because they illustrate that Wisconsin is one of the states that is expected to save money by “expanding” eligibility for low-income non-caretaker adults. That said, I think the general contours of the report’s findings are probably more useful than the specific numbers. In my opinion, a number of variables appear to make the cost estimates too low in some respects, while potentially underestimating the savings in other respects.

In short, the Urban Institute’s analysis shows that the Medicaid option is a very good deal for all states, and particularly for Wisconsin. Just how good a deal it is for our state will need to be determined by some collaborative number-crunching by the Department of Health Services and the Legislative Fiscal Bureau.

You can find a good summary of the Urban Institute/Kaiser Foundation report in an article on Governing.com.

Jon Peacock