Posted by: Michael McGrath | January 25, 2013

Medicaid Expansion Mythbusters Series – Myth 1- Budget-busting Bait & Switch

In this series, we examine some of the myths surrounding Medicaid expansion under the Affordable Care Act.  Around 5000 North Carolinians living with HIV/AIDS would gain coverage if the state expands Medicaid.

Myth 1: North Carolina’s Medicaid obligation could double by 2018. Medicaid expansion is nothing more than a federal “bait and switch.”

A popular critique raised by Medicaid Expansion opponents is that the federal government is likely to pull a “bait and switch” when it comes to Medicaid funding. That is, that the federal government is heavily subsidizing the expansion in the first few years, but will drastically reduce its share of payments in years to come, leaving states like North Carolina to foot the growing bill.

Let’s start by directly examining the Affordable Care Act. The federal government has obligated itself to pay 100 percent of the cost of any newly eligible Medicaid enrollee for calendar years 2014, 2015, and 2016. Over this three-year period North Carolina would not be required to pay a single medical expense of any newly eligible enrollee. In fact, the longer North Carolina waits to expand its Medicaid program, the more funding it is actually foregoing. In 2017, the federal government will pay 95 percent of the cost, 94 percent in 2018, 93 percent in 2019, and finally 90 percent in 2020 and each year thereafter. Thus, North Carolina’s percentage share will not exceed 10 percent.

An oft-cited criticism is that while North Carolina’s percentage share of total spending will only be (at most) 10 percent of the expansion, there will be so many new enrollees that that 10 percent will still amount to an enormous strain on North Carolina’s budget. This is just not true. North Carolina’s own Department of Health and Human Services estimates that over 525,000 adults will become newly eligible and enroll in Medicaid as a result of expansion in North Carolina by 2019. However, North Carolina would increase its Medicaid spending by only 7.7 percent for the period of 2014 through 2019 according to the non-partisan Kaiser Family Foundation. This is far less than the “doubling” (or 100 percent increase) that opponents of the expansion have warned could occur. In reality, a 7.7 percent increase in Medicaid spending to extend coverage to over 525,000 North Carolinians is a fantastic deal for taxpayers.

Additionally, this increase in spending will in all likelihood be completely offset within North Carolina by a reduction in the cost of uncompensated care paid out by hospitals. The North Carolina Hospital Association estimated that in 2010 North Carolina hospitals provided almost $1.1 billion in uncompensated care to uninsured individuals. While this wouldn’t be totally erased by Medicaid expansion, the vast majority of those individuals would receive health care coverage, thus dramatically decreasing the cost of uncompensated care to North Carolina providers. Savings garnered from uncompensated care and other state aid programs could more than make up for the 7.7 percent additional expenditure cited above, to the state and hospitals alike.

Lastly, consider that between fiscal year 2004 and 2013 the federal government’s share of Medicaid payments to North Carolina has remained relatively steady. In FY2004, North Carolina received 65.80% of its total Medicaid budget from the federal government, in FY2013, North Carolina will receive 65.51% of its Medicaid funds from the federal government. This Medicaid reimbursement stability over time should assure fears that the federal government’s Medicaid funding will be decreased substantially. The feds have consistently kept up their Medicaid funding commitment. Likewise, even if the federal government wanted to suddenly refuse to fund the expansion, the state would not be without options. For one thing, Medicaid is extremely popular and voters in states across the country already support the expansion by large numbers. Federal legislators very rarely reduce benefits from large entitlement programs with public support (think Social Security). More importantly, if the federal government suddenly ceased funding the expansion, North Carolina would likewise be free to discontinue the coverage and could point to the loss of federal funding as the clear rationale for their action.

Undoubtedly, expanding Medicaid will require a slight increase in state spending on the Medicaid program; however the trade-off is enormous. For what can only be described as a modest increase in state spending, over half a million North Carolinians stand to join the ranks of the insured. This in turn will dramatically decrease uncompensated care in hospitals statewide and ensure that low-income individuals will have the ability to afford basic health care services.

Michael McGrath is a second year Duke law student enrolled in the AIDS Policy clinic.

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