‘Asset-tests’ are sometimes used alongside income to determine a household’s eligibility for public assistance.  For instance, a low-income household might otherwise have qualified for the tribal food program because their earnings were below the poverty-level, but because they had over $2,000 in a savings account, they became ineligible for assistance.  CFED explains the original rationale behind asset-limits, and their irrelevance today:

If individuals or families have assets exceeding the state’s limit, they must “spend down” longer-term savings in order to receive what is often short-term public assistance. These asset limits, which were originally created to ensure that public resources did not go to “asset-rich” individuals, are a relic of entitlement policies that in some cases no longer exist. Cash welfare programs, for example, now focus on quickly moving individuals and families to self-sufficiency, rather than allowing them to receive benefits indefinitely.

Programs designed to help the poor should reward those who save.  Asset tests do the exact opposite; they discourage families from saving because recipients risk losing benefits if they begin to accumulate assets – including donations they might receive from relatives, their faith group, or some other charity.  People cannot escape poverty unless they begin to build-up savings to prepare for long-term financial security and protect themselves against unforeseen events – like medical bills, car repairs, or temporary unemployment. Nearly half of Oklahoma households (48.2 percent) and a majority of the state’s minority households (65.5 percent) do not have enough money in the bank to subsist at the poverty level for three months if they lost their income.  Low-income households are particularly vulnerable to financial emergencies, as many have trouble making ends meet and are ill-positioned to save.

Of the three main state programs that assist poor families in meeting basic needs, only the TANF program uses an asset-test to determine eligibility.  Families who are income-eligible for TANF must also have less than $1,000 in ‘assets’ (cash, savings, a vehicle) to qualify for benefits.  Up to $5,000 of a vehicle’s equity is exempt from this requirement.  The state’s Medicaid and food assistance program do not exclude families from eligibility because they’ve accumulated certain basic assets, like a car or a savings account:

Asset limits expose a fundamental tension inherent in providing basic benefits to impoverished families.  Without higher wages, or lower monthly costs, the prospects for low-income people to transition out of poverty are bleak.  Programs that are designed to provide a subsistence level of support should be sensitive to the precarious financial position of their recipients, and work to support those families in every way possible.  By threatening to withdraw the benefits that they may need desperately in the short-term, asset limits prevent program participants from ever escaping poverty by sanctioning those who are fortunate enough to be moving towards long-term financial stability.

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This story was written by Jay Hancock, a staff writer for Kaiser Health News, a publication of the Kaiser Family Foundation and was originally published on March 22nd, 2012.  For a break down of the issues being debated before the Supreme Court on the Affordable Care Act, see our blog post here.

Before the raucous legislative battle to pass the health law in 2010, there was a quieter but significant process that brought health industry players to the negotiating table. Insurers, hospitals and drug makers all cut deals to help shape what would become the Affordable Care Act.

America's Health Insurance Plans President and CEO Karen Ignagni (Photo by Chip Somodevilla/Getty Images)

Now, as the Supreme Court awaits arguments in one of the most closely watched cases in years, the deals are threatened along with the law. And the industry groups are deploying different strategies as they seek to defend their interests before the High Court.

Insurers have chosen not to defend the massive dividend for their industry that many believe makes the law most vulnerable. The “individual mandate” requires almost everybody to buy health insurance or pay a fine – a major concession the lobby got at the bargaining table. But insurers are not taking a stand on whether the mandate is an unconstitutional abuse of federal power, as the law’s opponents contend.

“I don’t think the public or the courts recognize our industry for its constitutional expertise,” said Karen Ignagni, chief executive of America’s Health Insurance Plans, an industry lobby.

Insurers do express strong views on what the court should do if the mandate is tossed out. Their memo to the justices joins more than 130 other briefs, the largest number of “friend of the court” briefs ever filed for a Supreme Court case.

Hospitals, the law’s most energetic health-industry defender, urge the court to uphold the entire health overhaul act. Drug makers just want the legal case and resulting uncertainty to be over.

The American Medical Association, the largest doctor lobby, supports the law and is working to influence rules for insurance exchanges and other components. But, like the largest drug trade group, it has filed no briefs with the court.

“There have been ample statements on all sides of the issues,” said AMA President Dr. Peter Carmel. “Our focus now is on assuring effective implementation of the law and on securing further improvements.”

Much calculation focuses on the individual mandate, a multibillion-dollar source of revenue to pay for expanded care but one that is opposed by dozens of states as government overreach. If the mandate disappears, insurers have the most to lose, analysts said.

“You need the individual mandate in place for this reform law to work,” said Rouven Wool-Lewis, a health services analyst for T. Rowe Price, a Baltimore money management company. “If that gets ruled unconstitutional, I think people worry about the profitability of managed care.”

The insurers worry that the court could block the mandate but uphold a separate requirement that they accept all members at a uniform price regardless of pre-existing illnesses, a situation Wool-Lewis likened to “signing up for fire insurance while your house is on fire.”

Under that scenario insurers could find themselves with sick new members but without much of the expected money to pay for their care.

“That’s the most important thing here – the linkage” between the mandate and insurers’ obligation to sell policies to all comers, Ignagni said. “The American people want reforms to work and without that link it’s going to be impossible to make that happen.”

If the court dumps the mandate, insurers want the justices to jettison this “guaranteed issue” requirement, too. The industry draws comfort from the fact that the federal government has taken the same position.

Besides threatening insurer profits, which have been robust since the law was passed, a decision to strike the mandate but leave the expanded coverage requirements in place could hurt all consumers, the industry contends.

“That’s clearly going to cause premiums to move up for the people who have insurance,” said Peter Costa, who follows managed care stocks for Wells Fargo.

As evidence, insurers point to states such as New York, New Jersey and Washington that required plans to expand coverage without a sign-up mandate. The result, they say, was skyrocketing premiums and a plunge in the number of people covered in the individual market. Some, however, argue that federal subsidies distributed through health insurance exchanges for lower income workers would keep individual premiums relatively affordable even in the mandate’s absence.

Hospitals were early proponents of the Affordable Care Act, not least because of the promise of billions in extra spending through the mandate, government insurance subsidies and a substantial expansion of Medicaid, the federal program for low-income patients. But hospitals, too, are concerned the court will outlaw the mandate while upholding provisions that would put them at financial risk.

One component of the law would cut payments to hospitals treating a disproportionate share of the medically indigent. Others would penalize hospitals if they don’t increase productivity or reduce expensive readmissions.

“Those are cuts that the hospitals accepted in anticipation of increased coverage” via the mandate, said Melinda Hatton, general counsel for the American Hospital Association. Those parts of the law “are directly linked to the individual mandate” and should survive or disappear along with it, she said.

The court will also hear arguments against the Affordable Care Act’s Medicaid expansion, another huge source of new revenue not only for hospitals but for insurers, which have substantially expanded their Medicaid managed care business. States contend the expansion is unconstitutionally “coercive,” an argument that hospitals sharply dispute.

“It’s clearly within Congress’ power to make changes in the Medicaid program,” Hatton said. “And this is no different.”

The insurance lobby is just as silent on the constitutionality of the Medicaid expansion as it is on the constitutionality of the mandate. Both positions are tactical nods to the act’s Republican opponents, some say. But insurers may not want the mandate or the entire act overturned any more than hospitals do.

“I do not believe from the conversations I’ve had that anybody in the insurance industry wants this law thrown out in its entirety,” said Robert Laszewski, a veteran health policy consultant and former insurance executive. “While a lot of people in the industry don’t love this law, we didn’t get a public option and we didn’t get a Canadian-style system.”

Canada’s government-run medical system or a proposed “public-option” government carrier to compete with commercial insurers are anathema to the industry.

“The notion that we might have to do this all over again is not a notion that anybody in the industry is going to look forward to,” Laszewski said.

In any event, Wells Fargo analyst Costa believes the stakes for the health care industry are lower in the Supreme Court deliberations than they are in the November elections.

The individual-policy business affected by any decision over the mandate is “less important when you consider the big picture of earnings from these companies,” he said.

The bigger problem comes if Republicans take control of the Senate or even the White House, he said. While they’re unlikely to gain enough seats to repeal the health reform act, they could win enough control to jeopardize funding for the Medicaid expansion and other measures.

“We believe the biggest risk is around defunding health reform and not repealing it,” Costa wrote in a report to clients.

Another possible outcome of court deliberations is delay. The justices could rule that the Anti-Injunction Act prevents the plaintiffs from challenging the mandate until it goes into effect in 2014. On that issue, at least, the industry seems to be in broad agreement with the opinion of the Pharmaceutical Research and Manufacturers of America, a trade group.

“We think the court should take the opportunity to see the legal issues resolved,” said PhRMA spokesman Matt Bennett. “Uncertainty in the law is bad for patients, providers and the entire health care sector.”

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Day 1: Monday March 26th, 2012

The first day of argument will focus on a procedural question: are the states even allowed to bring suit over a portion of the law that hasn’t yet been enacted?  An existing federal law, the Anti-Injunction Act, prohibits challenging a tax prior to that tax being imposed.  Proponents of the Affordable Care Act argue that since the ‘individual mandate’ amounts to a tax that doesn’t take effect until 2014, this little-known law might actually pose a significant threat to the health law’s challengers.  As Stuart Taylor of the Brookings Institution wryly observes:

If the justices agree that the Anti-Injunction Act applies, this year’s case will be perhaps the greatest anticlimax in Supreme Court history. And, the justices’ assignment of a full hour of oral argument to this question suggests that some take this issue very seriously.

Day 2: Tuesday March 27th, 2012

The second day features the main event: the constitutionality of the so-called ‘individual mandate.’  The Affordable Care Act requires most adults to carry health insurance starting in 2014 or pay a penalty.  Challengers argue that this requirement is unconstitutional.  Lower court judges who have ruled the mandate unconstitutional cite a lack of precedent for Congress to require people to buy a commercial product, particularly if it’s against their will.

Yet, several prominent and staunchly conservative federal appeals court judges have upheld the mandate on commerce clause grounds.  The constitution’s commerce clause permits Congress to regulate economic activity amongst the states.  When the uninsured get medical treatment they can’t pay for, it’s ultimately taxpayers who foot the bill.  Thus, the uninsured are making an economic decision that largely impacts the residents and economies of all states and should be subject to regulation under the commerce clause.

Day 3: Wednesday March 28th, 2012

The court will also entertain debate about what should happen to the rest of the health care law if the individual mandate is struck down.  In other words, is the individual mandate severable, or should the entire law go down if it does.  This ‘severability’ question is highly technical and a bit thorny, but explained well by an industry association here:

The Affordable Care Act does not contain a severability clause. Severability clauses provide that the failure of one provision in an act of Congress does not affect the remaining portions of the act. The absence of a severability clause does not mean that provisions are not severable, but it can leave the decision regarding severability up to the courts.

So far, the lower courts have diverged regarding the severability of the individual mandate from the rest of the law, in different ways and for different reasons.  How the nine sitting Supreme Court Justices will rule is impossible to predict with certainty, but that hasn’t stopped anyone from trying.

The final day of argument will also consider a portion of the health law that many thought was out of reach of a legal challenge: the expansion of Medicaid eligibility to all working age adults up to 138 percent of the federal poverty level.  The suit alleges that the federal government is unconstitutionally “coercing” states into expanding Medicaid.  It’s an awkward argument on the part of the twenty-six states in the suit, given nearly a century of precedent upholding the federal government’s power to make federal funds to the states conditional upon certain requirements, as the Medicaid program has always done.  Health policy historian Timothy Jost points out:

[States] could hardly argue otherwise because the power of Congress to make conditional grants to the states has been recognized in Supreme Court precedent since the 1930s.  Federal government conditional grant programs are in fact pervasive, including not just health and welfare programs, but also programs providing federal assistance for education, transportation, infrastructure, and indeed homeland security.

But the states say that Medicaid, while technically not a compulsory program, isn’t functionally voluntary anymore either.  They argue that the new healthcare law makes participation in Medicaid all but mandatory because there is no alternative for states who want to drop the program.  More to the point, there is no alternative for the residents of those states who are eligible for Medicaid and required to carry insurance.

Speculation on how the Supreme Court will rule is rampant.  We likely won’t know the answer until June of this year, when the Court will issue its ruling and written opinions.  Oklahoma has suspended action on creating a state health insurance exchange, a required component of the Affordable Care Act, in hopes that the Court’s decision will slow the implementation of health care reform.  Given that health insurance exchanges aren’t being challenged in the pending lawsuit, this strategy seems a bit foolhardy.  In the meantime, the oral argument proceedings should give us a glimpse into how the Justices are thinking through the major points of contention in the case.  We are in uncharted legal waters on many of these claims.  No matter what happens over the spring and summer, this case is shaping up to be one for the ages.

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Our country is now poised through the Affordable Care Act to help millions of American families and small businesses and their employees access high quality, affordable health care coverage.  This isn’t going to happen by itself.  This is not simple.  If it were simple, someone would have accomplished it years ago.  This is complicated, but it is not beyond our grasp [..]

We are ready in Maryland to turn the corner on the healthcare costs that have been sapping our productivity as a people and as a nation.  Sapping the productivity of our businesses.  Taking from them the ability to reinvest in their own plants and their own opportunities and their own markets. Costs that force moms and dads to choose between health care and paying for groceries, or tuition, or school supplies, heat, rent, mortgage payments.  These are the big decisions that happen in the most important place – the kitchen table of every family home.

In Maryland we believe we are gaining a competitive advantage by being an early implementer [of health care reform].  Last year we had the best year of new job creation that we’ve had since the recession hit [..] Why is it that at the same time we’ve cut 7.5 billion from our state budget, we’re increasing the ranks of those who are covered by healthcare so very, very dramatically?  It’s because there is an historic truth – not a Democratic truth or a Republican truth – but an American truth and an economic truth.  In order to create jobs, a modern economy requires modern investments.

Along with the investments we make in the education of our workforce, in the innovative capacities of our people, there is also the health of our people.  That too is an economic development investment.  It’s an investment in greater productivity, greater prosperity, and greater promise.  We’ve chosen to invest in healthcare [..] Our goal was to support the health of our workforce.  So moms and dads could go to work, so they could be productive, so they wouldn’t miss days from work or searching for work because they had to take care of sick kids or to take care of themselves.  It’s very hard to put in a full day’s work if you’re sick, if you can’t go to a doctor.  You see that played out time and time again in the economies of third world nations.  A healthy workforce is a productive workforce, is a profitable workforce.

In some places in our country Medicaid expansions are kept quiet.  States worry if you let people know the uninsured are becoming covered and they might go to the doctor, that this could cost money and that that might be something our neighbors scowl at.  In fact, some of our sister states in their legal briefs to the Supreme Court are describing people signing up for Medicaid as “one of the harms brought to states” because of the Affordable Care Act.  I encourage those who make that argument to read Matthews gospel 25[..] I want to mention the tragic case of Deamonte Driver, a little 12-year old boy in Prince George’s County who died because his family could not afford to go get a toothache looked at.  That toothache led to an infection that led to his brain that took his life.  Deamonte lived just outside this nation’s capital [..]

We might want to ask [those who say they want to repeal the law] what advice they would give to the millions of Americans who don’t have health insurance.  Crossing your fingers is not really a responsible option.  Do they believe, like that debate audience, we should allow hospitals with an injured uninsured patient to just ‘let him die’?  [..] That’s not how you move America forward and that is not what the vast majority of Americans in their heart expect of ourselves or our government.

We have a responsibility to make the business case for the Affordable Care Act.  What are the opportunity costs of inaction?  When a small business is paying another fifteen to twenty percent annually, every year for health insurance, how many fewer people are they employing? How many dollars could have gone into expanding markets for their products or services?   What are the opportunity costs for families when a mom has to choose between a roof over their head, food on the table, or healthcare?

People who are sick can’t work.  Mom and Dad can’t provide for their family if all of their dollars are going to rising healthcare costs, let alone keep paying the mortgage if all of the sudden they’re wiped out by some unanticipated hospital bills.  In the private sector rising costs are eroding the quantity and quality of health benefits for American workers.  In the public sector health costs are the single greatest threat to our fiscal sustainability [..]

Peter Orzag wrote these words:

It is no exaggeration to say the United States standing in the world depends on its success in constraining the healthcare cost explosion.  Unless it does, the country will eventually face a severe fiscal crisis or a crippling inability to invest in other areas.

Truly, bending the cost curve requires innovation [..] Innovations like the health information exchange which allows the sharing of data between hospitals, labs and thousands of doctor’s offices.  This isn’t something that we’re imagining.  It’s not something that we’re hoping for.  It’s something that we’re doing [..]

There is no area that cries out for better choices more so than the area of containing healthcare costs, of having better preventive care.  Making our workforce healthier, making the balance sheets of our small businesses better so that they can reinvest in more jobs and more opportunities.  We need to talk about this in terms of the business case for healthcare.  There are better ways to do this, virtually every country has shown that this is possible [..]

We’ve seen what works, but we’ve been too timid to do what our parents and grandparents had the courage to do.  Which was to do it at scale, to do it in an impactful, broad way.  To realize that in our America there is no such thing as a spare American.  Everyone is needed.  Are other countries so much more innovative than us that they can figure out how to do this to scale and we can’t?  I don’t buy that [..]  There are in fact challenges so large that we can only hope to tackle them together.  Making better choices in terms of healthcare is one of them.

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One popular myth is that Medicaid costs are rising exponentially and the program is riddled with waste.  In fact, scholarly research has demonstrated that Medicaid costs about 20 percent less on average per person than private insurance, so the program is quite lean.  While it is true that health care costs are rising, it’s important to remember that they are rising across the board, not just for the Medicaid program.  The state can also take advantage of a favorable federal matching rate to leverage their health care investment.  For every $1.00 the state government invests in SoonerCare in FY 2012, the federal government will contribute $1.77.

Another common myth is that Medicaid is free healthcare for people who don’t work.  Actually, most working-age adults in Oklahoma are not eligible for comprehensive SoonerCare coverage.  Only 9.6 percent of SoonerCare/Medicaid recipients in the state are healthy working-age adults (not counting those receiving only family planning services). That’s because eligibility for an adult who is neither elderly, disabled, or chronically ill is restricted to parents at or below 37 percent of the federal poverty level.  That’s just shy of $7,000 a year for a family of three.  The vast majority of Oklahomans on SoonerCare, about 70 percent, are kids and seniors.

SoonerCare/Medicaid is also instrumental in caring for chronically ill uninsured Oklahomans.  In 2011, the program provided care to 8,430 cancer patients and treated 81,920 with heart disease or stroke.  It also plays a central role in supporting the state’s aging and institutionalized population by helping cover the costs of nursing home care:

With nursing home or institutional care coverage largely unavailable through Medicare or traditional private health insurance plans, Medicaid is the nation’s de facto financing system. SoonerCare OLL (Opportunities for Living Life) funds nearly 70 percent of all long-term care (both nursing facilities and intermediate care facilities for the mentally retarded). SoonerCare provides coverage for low-income people and many middle-income individuals who have become nearly impoverished by “spending down” their assets to cover the high costs of their long-term care.

The new federal health care law will soon usher in significant changes to Medicaid, sparking a welcome and ongoing dialogue about the cost and value of the program. Pivotal in these discussions is an understanding of SoonerCare’s safety net function – without which thousands of Oklahoma families would forgo basic health services for their children, lack necessary medical care for their disabled loved ones, and be left to shoulder alone the unsustainable burden of the long-term care of their parents and grandparents.

Click here to download ‘Medicaid 101: The SoonerCare Safety Net’

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Let’s assume that you stand on principle that it’s not the government’s role to engage the health care system.  Then we have a gravely serious problem.  We are very nearly the unhealthiest state in the country and we’re getting worse.  Individual behaviors – smoking, diet, fitness - certainly affect health, but it’s by no means certain that they’re the most important factors.  What we’re facing in Oklahoma is bigger than the sum of each individual resident’s health choices.  Acute structural defects in the state’s health care system demand solutions that are bigger than each of us and addressing them will benefit all of us.

First, we do not have enough doctors, nurses, and health care providers in Oklahoma.  If you live in an urban area, this will be hard to relate to, but it’s true.  We rank 49th in availability of primary care physicians, with only about 82 physicians per 100,000 Oklahomans.  The consequences of this fact should be obvious.  Without access to regular preventative care and treatment when you’re sick, minor health problems can become catastrophic illnesses.  Rural Oklahomans could be making healthy choices, but end up unhealthy because of lack of access to care.  We need government support for efforts that promote access to care, like schools of community medicine, graduate student loans, and incentive programs for doctors who settle in remote areas.  How can we attract modern economic development to a state where many residents haven’t ever had a doctor?

Second, we have hundreds of thousands of households living in poverty.  Poverty affects a person’s health in innumerable ways that are beyond their control.  Not being able to afford medical care, even if you have a doctor nearby, can be an insurmountable hurdle to well-being.   Children living in poverty are especially vulnerable, as their health choices are totally dependent on caregivers who are already struggling to meet other basic needs like food, clothing, and shelter.  The state and federal governments, through the SoonerCare/Medicaid program, currently subsidize medical care for 472,111 Oklahoma children who might otherwise go without.  If you don’t think that government has a role to play in the overall health of our citizens, then you’d better be prepared to count those children out.

Other structural conditions, many perpetuated by living in poverty, also contribute to poor health:

• Lack of medical care, malnutrition, and second-hand smoke as an infant or during early childhood has lifelong effects on health.
• Limited access to healthy groceries coupled with abundant access to fast food in urban areas (‘food deserts’) significantly constrain household diet choices.
• Poor air quality exacerbates chronic conditions like asthma and other respiratory disorders.
• Fewer gyms and public parks in low-income areas make consistent exercise more challenging.
• Insufficient income to purchase nutritious food coupled with lack of knowledge about healthy eating stacks the deck against low-income households.

Government can and should invest in improving the structural conditions that destine impoverished people to a lifetime of poor health outcomes. There is no other alternative.  Oklahoma households cannot continue to work, save, and invest as more and more of their labor and income is taken up caring for ailing parents and grandparents.  The economic development goals of the state cannot be met with an ever-sicker, ever-poorer workforce.  Individual health problems eventually become public health problems that the state must address.  If we don’t come to terms with the grim reality of our health care situation on the ground, we cannot expect the state to enjoy continued, broad-based prosperity.

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What’s up this week at Oklahoma Policy Institute? The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

This week OK Policy released a paper showing that state costs under the new federal health care law are likely to be modest and could even yield net savings.  Click here to access a 1-page summary of our issue brief: Health Care Reform and the State Budget: Savings Likely to Partly or Fully Offset Modest New Costs.

OK Policy testified this week before the Joint Committee on the Federal Health Care Law.  Click here for our presentation exploring Oklahoma’s options for implementing state health insurance exchanges, a major requirement of the new law.  Read the Tulsa World’s coverage of our paper along with a summary of the committee meeting.

OK Policy intern Emily Callen explains why higher education remains a strong investment for Oklahomans and the state as a whole.  Yesterday’s OK Policy Blog points to evidence that the state’s personal income tax has very little to do with businesses’ decisions to locate in Oklahoma or elsewhere.  Oklahoma Policy Institute was mentioned in a NewsOK piece that called for thorough, numbers-based analysis, not platitudes, in the tax reform debate.

In the Know, Policy Notes

• Economist Mark Thoma explains in MSN Money why we have room to spread the wealth without harming efficiency and growth.
• Economist Nancy Folbre discusses gender differences in economic hardship during the recession.
• An economic historian shows that consumer spending, amplified by government outlays, are what created most growth in the last century, not business investment.
• Stateline reports on how Oregon may become the next national health care model for seeking to control costs while improving public health through community care.
• A new report from the Robert Wood Johnson Foundation finds that the Affordable Care Act will not adversely affect employer-sponsored health insurance coverage.

Numbers of the Week

• 533 – Number of operating school districts in Oklahoma for the 2010-2011 school year, 9th most in the nation.
• 5.9 percent – Oklahoma’s unemployment rate for September 2011, up slightly from the previous month’s rate of 5.6 percent.
• 3,632 – Number of bankruptcy filings in Oklahoma during the 2nd quarter of this year, down 14 percent from the same quarter in 2010.
• 58 – Number of USDA certified organic farms in Oklahoma, representing just one half of one percent of the 10,903 certified organic farms in the United States in 2008.

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We do not yet have a comprehensive study of the projected costs and savings of the Affordable Care Act for Oklahoma’s state budget. However, as a new OK Policy issue brief shows, most studies of the impact of the Affordable Care Act have concluded that increases to state Medicaid budgets will be modest. National studies from the Urban Institute and projections developed by the Oklahoma Health Care Authority have estimated that state spending on Medicaid may grow by $200 to $800 million between 2014 and 2019 or 2020, depending on various assumptions, while increasing state Medicaid spending by under 10 percent.  The federal government will assume over 90 percent of total costs of expanded Medicaid coverage. To cite the conclusion of the study by John Holahan and Irene Headen, the Urban Institute’s experienced and widely-respected health policy analysts:

Most of the cost of the new expansion will be borne by the federal government. States will have relatively small increases in state spending, but these will be swamped by new federal dollars that they will receive because of the reform. This is particularly true of the states that have low coverage today and will experience the largest increases in individuals newly eligible for the program.

Several studies at the national and state levels that have considered a broader range of factors associated with the Affordable Care Act – such as the federal government paying for the mental health care costs of those currently without insurance and new premium tax revenues from those purchasing insurance through a health care exchange – have concluded that the cost of the health care law will be less for states and could even yield net savings. A July 2011 report from the Robert Wood Johnson Foundation asserts:

State governments will collectively save between $92 billion and $129 billion from 2014 to 2019 because of provisions in the Affordable Care Act that are designed to reduce the uninsured population and provide federal funding for functions that, in the past, have been financed by states and localities.

Sticking out from this consensus, a report from the Oklahoma Council of Public Affairs and Cato Institute contends that Oklahoma’s Medicaid spending will increase by a staggering $11.4 billion during 2014-2023 as a result of the ACA, and grow 35 percent greater than without the new federal law.  OK Policy’s issue brief carefully shows how the OCPA/Cato Institute is based on flawed and exaggerated assumptions about who will enroll in Medicaid under the new law and how much they will cost. For example, all studies take into account the effect of enhanced outreach efforts and the individual mandate to bring those currently eligible but unenrolled out of the woodwork. This population of ‘old eligibles’ will only receive the traditional federal match rate and so will be considerably more expensive to the state. Because Medicaid eligibility for working-age adults in Oklahoma is  restricted to parents of dependent children under 37 percent of the poverty level, the state has few eligible but unenrolled individuals – 60,000, according to estimates by the Oklahoma Health Care Authority, most of whom are children. Yet the OCPA/Cato report somehow projects that some 145,000 individuals who are currently eligible but unenrolled in Medicaid will sign up under the Affordable Care Act.  This enrollment surge among the ‘old eligibles’ goes well beyond any ‘woodwork effect’ and appears to be more of a pure ‘thin air effect’

Similarly, in developing their cost calculations, the OCPA/Cato study overstates both the current Medicaid population and the average cost per recipient. Compounded together, the flaws in their study produce highly inflated estimates of the future cost of the Medicaid budget. At the same time, the report neglects to consider ways that additional state costs will be partly or fully offset by savings to the state budget under various provisions of the Affordable Care Act that reduce the uninsured population and provide federal funding for functions previously financed by the state.

There is no doubt that paying for health care at a time of scarce resources will remain an ongoing challenge for state leaders. However, by significantly reducing the number of Oklahomans without health insurance, the Affordable Care Act will reduce the strains that uncompensated care places on our health care providers across the state and will provide better health care and greater financial security to Oklahoma families. These benefits will  far outweigh the likely modest cost to the state budget of paying a small portion of the total bill.

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Budget-cutting efforts in Washington are adding to the perils confronting the state budget. Federal spending has a major impact on both the state economy and the state budget. The federal government spent $38.5 billion in Oklahoma last year, which works out to $10,256 for each resident.  The largest component of federal spending is for direct payments to individuals for Social Security and Medicare, along with salaries and wages to military personnel and other federal employees based in Oklahoma.

The federal government also transferred $7.8 billion in grants to state and local governments for over 530 programs.  The largest of these by far is Medicaid ($3.5 billion). In 2008, almost one dollar of every three in Oklahoma’s total state revenue came from the federal government.

Under the Budget Control Act approved this summer, the Joint Select Committee on Deficit Reduction, known as the Supercommittee, has until November to propose at least $1.2 trillion in deficit reduction measures over the next decade. If the Joint Committee fails to agree on the requisite savings, or if its recommendations are rejected by Congress or the President, then automatic procedures to achieve $1.2 trillion in deficit reduction will take effect (You can watch our video explanation of the Budget Control Act or see our summary slides). The impact that the Budget Control Act will have on Oklahoma and other states will depend decisively on whether the Joint Committee reaches an agreement, and what the agreement looks like.

Should the Joint Committee reach an agreement, the impact on the state budget will depend on the size and make-up of the deficit-reduction measures it adopts – in particular, decisions affecting Medicaid. In September, President Obama released a proposal aimed at reducing the deficit by over $4 trillion over the next ten years through a combination of spending cuts and tax increases. The President’s plan includes modest cuts to Medicaid spending totaling an estimated $66 billion over ten years, primarily by reducing limits on provider fees and phasing in a new blended match rate for Medicaid and CHIP.  His plan does not envision additional cuts to discretionary spending beyond those agreed to under the Budget Control Act. However, it is quite possible that any agreement would include much deeper cuts to Medicaid and to other federally funded state programs.

Should, however, the Joint Committee fail to reach an agreement, this outcome will trigger automatic cuts known as ‘sequestration’. Under sequestration, discretionary spending will be subject to across-the-board cuts, while most mandatory spending will be exempt. Many of the largest federally funded state-run programs will be exempt from automatic cuts, including Medicaid and CHIP, cash assistance payments, major nutrition programs such as WIC and the school lunch program, vaccines for children, child care entitlement spending, and transportation. In total, Federal Funds Information for the State estimates that of $497 billion in federal funding for major grant programs, $364 million, or 73 percent, would be exempt from cuts under sequestration.

But even if only roughly one-quarter of federal grant payments to the state are subject to cuts, the impact would be significant. The Center on Budget and Policy Priorities calculates that non-exempt programs would face a 9 percent annual cut under sequestration effective January 2013. These cuts would be above and beyond $900 billion in cuts to discretionary programs over ten years already agreed to under the Budget Control Act. Programs facing cuts include:

• almost all federal education spending, including Title I funding for low-income students, IDEA funding for students with special needs, and Head Start;
•  important social programs, including child welfare services, community service and community development block grants, low-income heating assistance, housing programs, and non-mandatory child care spending;
• law enforcement programs;
• environmental protection programs;
• agricultural programs.

It’s also important to note that if automatic cuts take effect, half of all cuts, equal to $54.7 billion each year from 2013 to 2021, must be absorbed by the defense budget.  States such as Oklahoma with a large military presence would be disproportionately affected by such deep cuts in defense spending.

The Joint Committee can avoid automatic sequestration and minimize cuts in Medicaid and other grant programs to states to the extent it achieves part of its deficit reduction goals by increasing federal revenues rather than reducing federal support to states.  Since Oklahoma is not a wealthy state, Oklahoma would likely do better under a plan that reduced deficits by raising revenues from the well-off than by cutting aid to states.

Whether states should be rooting for the devil known (the failure of the Supercommittee triggering significant cuts to many discretionary programs but exempting Medicaid) or the devil unknown (an agreement where everything is on the table, including Medicaid) can’t really be determined. Either way, we can expect that federal cuts are coming and that they will make the challenge of funding core services even more daunting in the years ahead.

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Medicaid is the primary source of health insurance for low-income children, pregnant women, seniors, and individuals with disabilities. The federal-state program covers 47 million Americans, or just under one in five of all those with health insurance coverage (2009). In Oklahoma, 728,594 persons are covered by Medicaid as of May 2011; the majority (63 percent) are low-income children. Medicaid is administered by the states with the federal government assuming a majority share of the costs.

As with all health care costs, the cost of Medicaid has been rising rapidly in recent years and has been absorbing a growing share of state budgets. As we showed in this recent blog post, the Oklahoma Health Care Authority, the state’s Medicaid agency, will receive 15.1 percent of state appropriations in FY ’12, compared to 6.9 percent in FY ’01. In part, rising Medicaid costs are the result of  rising enrollment, especially of children. Employer-based coverage for children has declined and the state expanded eligibility for children up to 185 percent of the federal poverty level. The new health care law, the Affordable Care Act, expands Medicaid eligibility for low-income adults up to 133 percent of the federal poverty limit in 2014. According to a study for the Kaiser Commission on Medicaid and the Uninsured, the health care law is projected to increase Oklahoma’s Medicaid enrollment by  350,000 – 470,000 individuals and increase the state’s Medicaid spending by 4-6 percent. The federal government will assume well over 90 percent of the costs of Medicaid expansion in the initial years, with states covering the remainder.

In these tight budget times, it is especially critical to be sure that public funds invested in Medicaid have an impact. The new study (available only for purchase),  from a team of leading health care researchers and economists published by the National Bureau of Economic Research, provides encouraging evidence of the benefits of Medicaid coverage – and, conversely, of the costs of being without insurance. The study examines what happened in Oregon when the state opened a waiting list for a limited number of spots in the Medicaid program, drawing 10,000 names by lottery out of a pool of some 90,000 applicants.  By comparing a sample of  those chosen to apply (the ‘treatment group’) to a sample of non-applicants, the researchers were provided a unique opportunity to apply scientifically rigorous methods to the study of social policy.

In the first year, the study finds significantly better outcomes for the treatment group in three key areas (based on summaries from the Center on Budget and Policy Priorities, New York Times and Washington Post):

• Increased health care utilization: Compared to the uninsured group, Medicaid recipients got 35 percent more outpatient care, 30 percent more inpatient care and 15 percent more prescription-drug care. They were 70 percent likelier to have a regular office or clinic where they could receive primary care and women were 60 percent likelier to have mammograms,
• Better health condition: Medicaid recipients were 25 percent likelier to report themselves in “good” or “excellent” health and 40 percent less likely to report a decline in their health in the last six months.
• Greater financial stability: Those with Medicaid were 25 percent less likely to have an unpaid medical bill sent to a collection agency and 40 percent less likely to have to borrow money or leave other bills unpaid in order to cover medical expenses.

According to Katherine Baicker, a Harvard economist who worked on the study and was a member of George W. Bush’s Council of Economic Advisers:

The broad characterization of what we’ve learned is Medicaid matters. It improves your health, increases utilization, and reduces the financial strain against being insured.

In a state like Oklahoma that has a high rate of uninsured and ranks among the unhealthiest states, the study also demonstrates, at least implicitly, some of the costs of being without health insurance – less timely care and poorer health for our workforce, greater debt and financial strain for our households. Expanding Medicaid coverage to low-income adults thus provides us with a real opportunity in the coming years to promote family economic security and overall economic prosperity for Oklahoma.

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