Beshear: Medicaid expansion will pay for itself

Gov. Steve Beshear said Thursday that an independent analysis of the costs and benefits of expanding Medicaid under the Affordable Care Act “shows expansion will more than pay for itself.”

Kentucky has enrolled about 375,000 in Medicaid whose income falls between 100 percent and 138 percent of the federal poverty level, providing most with health insurance for the first time.

But critics say the state can’t afford the added costs. When Beshear announced the expansion in 2013, he rolled out the conclusions of a study by Price Waterhouse Coopers that showed the expansion would produce an $802 million benefit to the state budget over eight years.

But critics, primarily Republican opponents of the ACA, have continued to ask how much it will cost the state to pay for the expanded Medicaid rolls once the federal government reduces its portion of the costs from 100 percent to 90 percent.

Beshear commissioned a second study to determine the costs after a year of enrollment, this time hiring Deloitte Consulting at a cost of $140,000. Its conclusion is that the cumulative savings will be greater than originally predicted, rising to $819 million by 2021.

Expansion will create about 40,000 new jobs by 2021 and save the state more than $264 million in the next two years. But the savings in the overall Medicaid program begin to slow in the out years, slowing to about $14.7 million in 2020 and then showing a $44.7 million loss in 2021.

But that is mostly due to the rising costs to serve Medicaid eligible who weren’t previously enrolled — those who meet prior eligibility requirements such as the elderly, disabled and pregnant women. They are the so-called “woodwork” enrollees. They were always eligible for Medicaid, even before passage of the ACA, but hadn’t signed up. With increased publicity and enrollment efforts under the ACA (or Obamcare as it is popularly known), they were identified and enrolled in the traditional Medicaid program, not the expanded program.

But even accounting for those added costs, the Deloitte study shows a cumulative net positive impact of $819 million on the state budget over eight years.

That’s because of increased tax revenues from a projected 40,000 new jobs as well as reduced expenses the state used to pay directly for such things as health care for inmates who will now be covered under Medicaid. The total economic impact over eight years, according to the study, will be $30 billion.

Beshear said if Kentucky hadn’t chosen to participate in the Medicaid expansion, its Medicaid costs would have risen by about $100 million over those same eight years.

He said the Deloitte study buries the cost objection “under an avalanche of facts.” He said it shows Kentucky can’t afford not to expand Medicaid.

It’s not just the state budget which will benefit. Hospitals took in an additional $500 million in calendar year 2014 due to increased reimbursements from the expansion. Previously, hospitals treated the same population – those who couldn’t afford private insurance but didn’t meet the previous Medicaid eligibility requirements — but received no reimbursement.

Instead, the state paid hospitals a disproportionate share payment or DSH to offset some – but not nearly all – of those costs. Eventually, as Medicaid pays more of the costs for treating those patients, the DSH payment will end, adding to the state’s savings.

Beshear said hospitals have already seen a 60 percent reduction in uncompensated costs. Pharmacies and other provides also benefited from increased reimbursement payments.

“The state is saving money, hospitals are earning more, and our people are getting healthier,” Beshear said.

Already, Beshear said, the expansion is paying off in better and preventive health care . In 2014, there were 17,000 colorectal cancer screenings paid for by Medicaid expansion; 26,000 mammograms; 34,000 screenings for cervical cancer; 46,000 diabetes screenings; and 13,000 people received substance abuse treatment.

The percentage of Kentucky residents without health coverage has also plunged since implementation of the ACA and expansion of Medicaid.

Beshear conceded the projections are uncertain but he said Deloitte based its analysis on “very conservative” assumptions and he called for on-going reviews of the costs and benefits to the state. He reminded reporters that if in the future the program becomes too costly it can withdraw.

Some studies in other states have shown much less rosy projections, both for health outcomes and costs

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