Wrong Number: Medicaid cost estimates are exaggerated and misleading

In announcing her decision not to participate in the expansion of Medicaid for low-income adults under the Affordable Care Act, Governor Mary Fallin asserted:

Expanding Medicaid as written in the [Affordable Care Act] would cost the state of Oklahoma as much as $475 million between fiscal years 2014 and 2020. Paying for these increases would necessitate significant cuts to other critical parts of the state’s budget like education and public safety. The cost of Medicaid expansion is unsustainable and creates an additional burden on taxpayers and the federal deficit.

The Governor’s claim that extending Medicaid would cost the state up to $475 million over seven years is greatly exaggerated and misleading. It is based on unrealistic assumptions of how many people will enroll in Medicaid, includes costs that the state will absorb whether we expand Medicaid or not, and ignores savings and new revenues that will benefit the state budget. When we consider benefits of increased coverage for the health of our citizens and financial well-being of our health care providers, Medicaid expansion is clearly affordable and urgent.

The Affordable Care Act expands Medicaid coverage up to 133 percent of the federal poverty level for all individuals. Currently in Oklahoma, working-age adults are eligible for Medicaid only if they are parents of dependent children and have incomes below 37 percent of the poverty level.  Nearly fifty percent of  Oklahoma adults with income below 133 percent of poverty are uninsured, and the Medicaid expansion would make some 180,000 uninsured adults Medicaid-eligible. Most of this population is not eligible for premium subsidies to purchase private insurance through the new health insurance exchanges, which only assist individuals with incomes between 100 and 400 percent of the federal poverty level.

To encourage states to expand Medicaid, the federal government will pay 100 percent of a state’s cost for covering the newly-eligible population from 2014-2016, and then phase down to paying 90 percent on a permanent basis after 2020. While upholding the Affordable Care Act and Medicaid expansion, the US Supreme Court ruled that the federal government could not withdraw all of a state’s Medicaid funds if it opted not to expand Medicaid. This effectively leaves states the choice to expand coverage for low-income adults.

The Governor’s projected state costs of up to $475 million over seven years if Oklahoma chooses to expand Medicaid is misleading for several reasons:

• It includes costs the state will incur even if it doesn’t expand Medicaid. Over sixty percent of the total cost cited by the Governor is attributable to people who can already get Medicaid but are not enrolled.  This includes some 45,000 children and 15,000 adults. Since Oklahoma will be on the hook for this population whether we expand Medicaid or not, their cost is not properly attributable to an expansion
• It is based on unrealistic participation assumptions. The Governor assumes 100 percent participation of every individual who is eligible for Medicaid – both the newly-eligible and those currently eligible and not enrolled.  This is contrary to all prior experiences with participation in public programs. As the Center on Budget and Policy Priorities notes:

No means-tested public program has ever achieved a 100 percent participation rate. Even Medicare, a popular universal program has a participation rate of 96 percent. More credible estimates prepared by the Urban Institute assume that of the uninsured individuals who will be eligible for Medicaid, 10-40 percent of those who are currently eligible but not enrolled and 57-75 percent of those who will be newly eligible, will sign up for coverage.

The Oklahoma Health Care Authority projects  that the total state cost for  newly-eligible  Oklahomans from 2014 to 2020 will range from $120 million, if 57 percent of those eligible participate, to $158 million, if 75 percent participate.  At an average annual cost of $17.1 to $22.5 million, this  is equivalent to less than 0.5 percent of current state appropriations.

• It ignores savings to the state budget.  The state currently spends close to $50 million annually providing health care services to uninsured adults through the Department of Mental Health and Substance Abuse Services, Corrections Department and Health Department. Expanding Medicaid would transfer 90 to 100 percent of the cost of services for newly-insured adults from the state budget to  the federal government.  

• It ignores state revenues that will be generated from increased health care spending. Expanding Medicaid would bring hundreds of millions of additional federal dollars each year to Oklahoma that will be spent on health care. This spending will generate additional jobs, which in turn generates additional tax revenues. State tax collections  will jump $29.8 million in 2014, assuming that 57 percent of  those newly-eligible for Medicaid join, according to an OSU estimate.

Bottom line: If we set aside the population that is already eligible for Medicaid, use realistic participation assumptions, and consider offsetting savings and new revenues, the state will be looking at very modest spending increases by expanding Medicaid and could enjoy net savings. Instead of being a deal we can’t afford, Medicaid expansion is a deal we can’t afford to pass up.

CLICK HERE for additional resources on Medicaid and the Affordable Care Act, including our statement on the Governor’s decision and a link to a page where you can send the Governor and legislative leaders a letter urging them to participate in Medicaid expansion.