Effect of the ACA on Michigan Medicaid Enrollment and Cost Sharing

As suggested above, the Medicaid expansion envisioned under the ACA is designed to provide coverage to the uninsured. This uninsured population is composed predominantly of people up to age 64, since most people become eligible for Medicare at age 65.[*] Thus, while Medicaid does provide significant coverage to some financially stressed seniors, the primary population of interest in the ACA’s proposed Medicaid expansion is the nonelderly uninsured.[†]

In 2010-2011, there were more than 2.3 million nonelderly individuals in Michigan with incomes at 138 percent or less of the federal poverty level, according to the most recent statistics from The Henry J. Kaiser Family Foundation.[‡] Of these individuals, 1.1 million nonelderly were already enrolled in Medicaid.[6] Of the remaining 1.2 million, 361,900 had employer coverage;[7] about 221,600 were covered by individual coverage or some type of public health insurance other than Medicaid;[8] and an estimated 647,700 were uninsured.[9]

Depending on their circumstances, many of these 1.2 million low-income nonelderly — at least theoretically — would be newly eligible under an expanded Medicaid program. For example, a person with an income up to $15,856 or a family of four with an income of up to $32,499 would be eligible for benefits.[§] However, most of the newly eligible would be adults, whereas most children in families at this income level are already eligible.

The ACA contains large financial incentives to encourage states to expand Medicaid eligibility. Under the Health Care and Education Reconciliation Act of 2010, the federal government is scheduled to pay 100 percent of the cost of benefits for newly eligible enrollees from 2014 through 2016.[10] The enhanced federal match will drop to 95 percent of costs in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and thereafter.[11]

The federal government will also pay 100 percent of the cost of boosting low Medicaid reimbursements for primary care providers to the same level as Medicare physician fees, but it will do so only for the years 2013 and 2014.[12] The federal government did not include provisions to boost Medicaid reimbursements to medical specialists to improve access to specialty care for Medicaid enrollees. After 2014, the cost of any continued effort to elevate Medicaid primary care provider fees would presumably fall to the states, as would any cost of boosting Medicaid fees to specialists.[¶]

Despite these limits, the federal Medicaid-expansion subsidies, at least as currently scheduled, are significant. It does not automatically follow that accepting them is the best policy option, however.

Consider, for instance, a key population targeted by the expansion: people who are uninsured and have incomes between 100 percent and 138 percent of the federal poverty level. Extrapolating from Kaiser Family Foundation figures, we project that this population in Michigan will number 177,516 people in 2014, the first year of the proposed Medicaid expansion.[13] Assuming that about 70 percent of this newly eligible population enrolled under an expanded state Medicaid program,[**] we estimate the number of people added to Medicaid would be 124,261 in 2014 at a cost of $4,686 per enrollee in federal and state spending.[††] Adjusting annually for population growth and increases in the program costs over the 10-year period, we estimate enrollment in this category to reach 125,137 in 2023 at a cost of $7,438 per enrollee in federal and state spending. Over the 10-year period, these costs would amount to nearly $7 billion in federal money and $475 million in state money (nominal dollars).

Several things should be noted about these figures. First, these numbers represent projected costs for only one of the target populations of the proposed Medicaid expansion. The figures do not include cost estimates for three significant populations of potential new Medicaid enrollees: uninsured people who are already eligible for Medicaid, but would apply only after the expansion; people who are currently insured under a private plan, but would switch to Medicaid;[‡‡] and people who are below 100 percent of the federal poverty line, but would become eligible for Medicaid only under the ACA’s provisions for a Medicaid expansion.[§§]

Proponents of the Medicaid expansion have forecast the enrollment of an additional 450,000 people[14] — considerably more than the roughly 125,000 in the single Medicaid-expansion target group we described above. A full cost estimate would yield much higher figures. The Washington, D.C.-based Heritage Foundation, for instance, has projected that a Medicaid expansion would have a net cost to Michigan taxpayers of $1.3 billion through 2022.[***]

Second, note that these estimates are based on the assumption that the federal government will provide the Medicaid subsidy levels currently stipulated in federal legislation. Future Congresses, however, have the right to renew, alter or cancel the initiatives of past Congresses. Thus, federal Medicaid matching rates could be substantially reduced if rising federal deficits prompt budget cuts in future years.[†††] Such a retrenchment in federal Medicaid spending could force Michigan taxpayers to bear significantly higher costs to maintain the Medicaid expansion.

Third, state policymakers should also recognize that even with generous federal Medicaid subsidies, the cost to the state is substantial. Indeed, this cost even exceeds what the state would spend to ensure that these roughly 125,000 potential new Medicaid enrollees paid nothing to obtain private health insurance on the ACA’s health insurance exchanges. Such private insurance could be valued at $12,500 per year.[‡‡‡]

To see why, policymakers should recall that under the ACA, starting in 2014, qualifying individuals can purchase federally subsidized individual health insurance in a state-based health insurance exchange if they have no access to Medicaid, Medicare, an employer-provided health plan or other forms of “minimum essential coverage” as defined under the ACA.[§§§] Federal exchange subsidies ensure that exchange enrollees who earn 100 percent to 133 percent of the poverty level pay no more than 2 percent of their incomes for their insurance premiums, and these subsidies likewise ensure that exchange enrollees earning 138 percent of the federal poverty level pay no more than 3 percent of incomes for their insurance premiums.[****] We estimate the average cost of a state subsidy for these percentages of the premiums for each of the approximately 125,000 potential enrollees at about $265 per year, yielding a total cost to the state of approximately $33 million annually, or roughly $331 million over 10 years (in nominal dollars).[††††] From 2014 through 2023, this considerable exchange subsidy would still be about $144 million less than the state Medicaid subsidy projected above.

This exercise points in turn to another important policy observation. The estimate in the previous paragraph is based on the cost of the exchange’s so-called “silver plan,” which has an actuarial value that pays on average 70 percent of all medical costs.[15] The premiums for this plan for individuals with incomes in the range of 100 percent to 138 percent of poverty level are, as noted above, on the order of 2 percent to 3 percent of income. While such premiums are not inconsequential for low-income families, they are not impossibly high, either. In addition, low-income individuals who opt for the less generous “bronze plans,” which have an actuarial value of 60 percent, may have to pay almost nothing for their coverage.[‡‡‡‡] The health insurance exchange therefore provides a feasible financial alternative for many members of the population targeted by the proposed Medicaid expansion.

[*] The Social Security Administration states, “Most people age 65 or older who are citizens or permanent residents of the United States are eligible for free Medicare hospital insurance. …” See “Medicare,” (Social Security Administration, 2013), 5, http://goo.gl/Y086r (accessed May 22, 2013). Eligibility for Medicare hospital insurance allows enrollment in Medicare’s medical insurance, as well. Ibid., 7. Those ineligible for Medicare may include, for instance, recent immigrants.

[†] This focus on the nonelderly is not meant to detract from the problems faced by elderly seniors whose needs for long-term care exceed their financial means and Medicare coverage. These problems, however, are separate from the general public policy concerns raised by the uninsured population.

[‡] “Health Insurance Coverage of the Nonelderly (0-64) with Incomes up to 139% Federal Poverty Level (FPL)(Number),” (The Henry J. Kaiser Family Foundation), http://goo.gl/RgRJc (accessed May 15, 2013). The table’s title is somewhat ambiguous, but the table includes only those with incomes equal to 138 percent of the poverty level or below; it does not include those with incomes equal to 139 percent of the poverty level. Lindsay O’Brien, Kaiser Family Foundation, email correspondence with Thomas Shull, Mackinac Center for Public Policy, May 17, 2013.

[§] Authors’ calculations based on “2013 Poverty Guidelines,” (U.S. Department of Health & Human Services, 2013), http://goo.gl/rMStC (accessed May 15, 2013); “The Patient Protection and Affordable Care Act (Public Law 111-148),” (Government Printing Office, 2010), 271, http://goo.gl/ipNH3 (accessed May 16, 2013). The federal poverty thresholds for the 48 contiguous states were used as the basis for the calculations.

[¶] Boosting Medicaid reimbursements could help ameliorate medical care access problems faced by Medicaid enrollees (a point discussed further below). Attempting to project the size of these costs if the state chose to assume them would not be a trivial exercise, however. The federal government’s Medicaid subsidies for Medicare-level reimbursements involve only a handful of specific primary care billing codes. To estimate the cost would require determining how much was spent in Michigan on these billing codes in the past and then estimating future utilization. Determining the cost for Medicare-level reimbursements to specialists would also involve projecting how many of the nonprimary care services and their associated billing codes would have to be increased to entice specialists to see Medicaid patients, and from this calculation, estimating the resulting utilization.

[**] Congressional Budget Office assumptions appear to be in the 66 percent to 70 percent range. Ben Sommers et al., “Understanding Participation Rates in Medicaid: Implications for the Affordable Care Act,” (U.S. Department of Health & Human Services, 2012), 7-8, http://goo.gl/R8bNt (accessed May 20, 2013).

[††] The Michigan Medicaid program spent $3,625 per adult enrollee in fiscal 2009, according to the Kaiser Family Foundation. “Medicaid Payments per Enrollee,” (Kaiser Family Foundation, 2013), http://goo.gl/axwch (accessed June 11, 2013). We estimate a per-enrollee Medicaid cost growth rate of a little less than 5.3 percent by adjusting a historical 7.9 percent annual increase in Michigan Medicaid spending by a historical 2.5 percent annual increase in Michigan Medicaid enrollment (see “Average Annual Growth in Medicaid Spending,” (Kaiser Family Foundation, 2013), http://goo.gl/Gql6B (accessed June 11, 2013)); “Health expenditures by state of residence: Summary Tables, 1991-2009,” (Centers for Medicare & Medicaid Services, 2011), 27, http://goo.gl/JvrvG (accessed June 11, 2013). This growth rate produces an estimated Medicaid cost per enrollee of $4,686 in 2014 and $7,438 in 2023.

[‡‡] See the discussion below under “Medicaid and Displacement of Private Insurance.” The Kaiser Family Foundation estimates 512,000 people in Michigan were at or below 138 percent of the federal poverty level and covered by employer-sponsored or individual private insurance in 2011. Authors’ calculations based on “Health Insurance Coverage of the Nonelderly (0-64) with Incomes up to 139% Federal Poverty Level (FPL)(Number),” (The Henry J. Kaiser Family Foundation), http://goo.gl/RgRJc (accessed May 15, 2013).

[§§] This group would include low-income nonpregnant nonelderly adults; see “Compilation of Patient Protection and Affordable Care Act [As Amended Through May 1, 2010] including Patient Protection and Affordable Care Act Health-Related Portions of the Health Care and Education Reconciliation Act of 2010,” (Office of the Legislative Counsel, 2010), 179 (Sec. 2001(a)(1)(C)), http://goo.gl/PxFe5 (accessed June 12, 2013).

[***] Drew Gonshorowski, “Medicaid Expansion in Michigan: Impact and Cost to Taxpayers,” (The Heritage Foundation, March 5, 2013), http://goo.gl/p9CUY (accessed June 12, 2013). The estimate represents a net cost because a Medicaid expansion could lower some expenses by reducing payments that states might make to health care providers for uncompensated care. The Heritage study concludes, however, “Medicaid expansion in Michigan would result in a rapid increase in spending beginning in 2017, quickly surpassing any modest savings from reductions in state payments to providers for uncompensated care.”

[†††] This concern is discussed in greater detail in “Is Federal Spending Sustainable?” below.

[‡‡‡] The Congressional Budget Office estimated that in 2016, the average unsubsidized premium for the health exchange’s least expensive “bronze” health plans, with an actuarial value of 60 percent, “would probably average between $4,500 and $5,000 for single policies and between $12,000 and $12,500 for family policies.” Health plans covering a higher proportion of medical costs would also be available, though at a higher cost. See Director of the Congressional Budget Office Douglas W. Elmendorf, “Letter to Senator Olympia Snowe,” (Congressional Budget Office, 2010), 1-2, http://goo.gl/Ii7fo (accessed May 20, 2013).

[§§§] Chris L. Peterson and Thomas Gabe, “Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (PPACA),” (Congressional Research Service (National Conference of State Legislatures), 2010), 2, http://goo.gl/mBiRw (accessed May 20, 2013). In general, these state-based health insurance exchanges are set up and administered either by the federal government or the state government. In Michigan, the exchange will be run by the federal government, though some efforts have been made to develop a “partnership” exchange that would give Michigan government some role.

[****] Ibid., i (Summary), 5-6, 7. Those earning above 133 percent would receive sliding-scale subsidies. Premiums would be no more than 3 percent of income at just over 133 percent of the federal poverty level and rise to no more than 9.5 percent of income at just under 400 percent of the federal poverty level. Ibid., i (Summary), 5-6, 8.

[††††] Authors’ estimates based on a take-up of 124,261 enrollees at an average subsidy cost of $265 per year, with 70 percent from individual households and with 30 percent from two-member households (many of the newly eligible are single childless adults, although some may be couples). The authors estimate the annual cost of state premium subsidy for a single person at $230, $306, $458 and $476 for income levels of 100 percent, 133 percent, just above 133 percent and 138 percent of the poverty level, respectively. The authors estimate equivalent costs for a person in a two-member household at $155, $206, $309 and $321 for 100 percent, 133 percent, just above 133 percent and 138 percent of the poverty level, respectively. Authors’ calculations based on “2013 Poverty Guidelines,” (U.S. Department of Health & Human Services, 2013), http://www.cdc.gov/nchs/data/databriefs/db38.pdf (accessed May 15, 2013). Amounts are based on a “silver plan,” which has an actuarial value that pays 70 percent of all medical costs.

[‡‡‡‡] Peterson and Gabe, “Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (PPACA),” (Congressional Research Service (National Conference of State Legislatures), 2010), http://goo.gl/mBiRw (accessed May 20, 2013). For examples of subsidies in the health insurance exchange, see the Kaiser Family Foundation Subsidy Calculator available at http://kff.org/interactive/ subsidy-calculator/.