The Economic Effects of Medicaid Expansion

1. The Economic Effects of Medicaid Expansion Stan Dorn, Senior Fellow The Urban Institute sdorn@urban.org SECF 44th Annual Meeting The Homestead, Hot Springs, VA November 13, 2013

2. Overview • Medicaid expansion and the Patient Protection and Affordable Care Act (ACA) • Urban Institute estimates • State estimates

3. Key sources of information for this presentation • John Holahan, Matthew Buettgens, and Stan Dorn. “The Cost of Not Expanding Medicaid.” Prepared by the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured. July 2013. • Contains cost and coverage estimates for every state, limited to topics on which estimates can be prepared reliably with national data. • Stan Dorn, John Holahan, Caitlin Carroll, and Megan McGrath. “Medicaid Expansion Under the ACA: How States Analyze the Fiscal and Economic Trade-Offs.” Prepared by the Urban Institute for the Robert Wood Johnson Foundation. June 2013. • Describes how 10 states analyzed the impact of Medicaid expansion on state budgets and economic growth, using state-specific data.

4. I. Medicaid expansion and the ACA

5. The ACA’s Key Provisions Relevant to Medicaid • Medicaid expansion to 138% of the federal poverty level (FPL) made optional by Supreme Court decision • Today, most states do not cover childless adults, parents covered to 61% FPL in median state • For newly eligible adults, federal payments cover 100 percent of health care costs for 2014-2016. Gradually falls to 90 percent in 2020 and thereafter. • States may not claim these funds unless they expand to 138% FPL. However: • Significant (though not infinite) federal flexibility, as shown by approval of Arkansas waiver • States can expand and contract eligibility at any time • The ACA provides federally-funded tax credits and other subsidies for private plans in Health Insurance Marketplace. To qualify, consumers must not be offered affordable employer coverage and must have income— • Between 139% and 400% FPL in states that expand Medicaid • Between 100% and 400% FPL in states that do not expand • Firms with > 50 workers can be penalized if workers use tax credits • Medicaid expansion and Marketplace subsidies funded mainly by certain tax increases and cuts to provider payments

6. State Decisions on Medicaid Expansion, as of October 22, 2013

7. II. Urban institute estimates

8. Health Insurance Policy Simulation Model (HIPSM) • Simulation model, like those used by the Congressional Budget Office and the U.S. Treasury Department, built to estimate the effects of health reform on individuals, businesses, and governments • Reflects state demographics, income, and insurance coverage; uses multiple years of national survey data and state Medicaid data • Incorporates state Medicaid and CHIP eligibility rules • Model predicts effects of policies like Medicaid expansion and exchange tax credits on coverage and costs • Model results generally consistent with CBO and other national models; more precise at state level than other models

9. The Effect of State Decisions to Expand Medicaid on Enrollment, by Expansion Decisions and Region, 2016 Potential Impact of Expansion on Medicaid Enrollment US Total = 13.1 million

10. The Effect of State Decisions to Expand Medicaid on Reductions in the Uninsured, by Expansion Decisions and Region, 2016 (All ACA Provisions) US Total = 24.7 million

11. The Effect of State Decisions to Expand Medicaid on Federal Payments Under the ACA, by Expansion Decisions and Region, 2016 US Total = $80.6 billion

12. The Effect of State Decisions to Expand Medicaid on Federal Payments Under the ACA, by Expansion Decisions and Region, 2013-2022 US Total = $800.2 billion

13. The Effect of State Decisions to Expand Medicaid on State Expenditures Under the ACA, by Expansion Decisions and Region, 2016

14. The Effect of State Decisions to Expand Medicaid on State Expenditures Under the ACA, by Expansion Decisions and Region, 2013-2022

15. The Effect of State Decisions to Expand Medicaid on Medicaid Payments to Hospitals, by Expansion Decisions and Region, 2013-2022 US Total = $314 billion

16. Factors outside our analysis • Administrative costs—some rise, others fall • State Medicaid savings when current-law beneficiaries earn higher federal match as low-income adults. E.g.: • Certain low-income people with disabilities • Medically needy adults • Women with breast or cervical cancer • State budget savings outside Medicaid. E.g.: • State-funded mental health and substance abuse services • Health insurance for public employees and retirees • Fewer uninsured = less cost-shifting from hospitals, slightly lower group premiums • Uncompensated care programs for safety net providers • Inpatient care for state prisoners

17. Other factors outside our analysis • Revenue effects. E.g.: • Taxes on providers and insurance premiums • Prescription drug rebates • General revenues • Macroeconomic effects • Overall, expansions tend to be essentially neutral • Expanding coverage puts money into health care, increasing employment and growth; but • Expansion is funded by taking money out of other places in the economy, reducing employment and growth • A state’s Medicaid expansion decision is different • ACA taxes and provider cuts apply, whatever the Medicaid decision • The only factor in the state’s control: whether or not to have more federal money spent on health care within the state

18. III. State estimates

19. Overall conclusion of state budget analyses in 10 RWJF states

20. Virginia State Government’s Analysis of ACA Fiscal Effects Source: Virginia Department of Medical Assistance Services, December 7, 2012

21. Estimated Macroeconomic Effects of Medicaid Expansion Note: Maryland estimates were for the ACA as a whole, not limited to the effects of the Medicaid expansion. Estimates with multiple scenarios, assuming various take-up levels, are shown with mid-level take-up; if only high and low levels are available (as with New Mexico), this table shows the low level. For the Hilltop, University of New Mexico, and SHADC, et al., studies, this table displays all results for the final estimated year, even though the studies also include multi-year estimates for state GDP, earnings, and state general revenue.

22. Summary of Medicaid expansion’s effects in SEFC States • 7.4 million fewer uninsured in 2016; 53% drop • Includes all of ACA, along with Medicaid expansion • Medicaid dollars • Federal funding increases by $27 billion in 2016 and $267 billion during 2013-2022; • State spending rises by $258 million $20.8 billion during those two periods • States can offset new Medicaid spending through factors outside our analysis, including: • Reduced state spending on Medicaid and non-Medicaid health care • Increased revenue resulting from Medicaid expansion • $114.1 billion rise in hospital payments during 2013-2022—a 37% boost • Helps offset ACA hospital reimbursement cuts to Medicaid DSH, Medicare DSH, and Medicare fee-for-service • Federal payments dwarf new net state spending (if any) and will have positive effects on state employment and economic growth