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Report from the State's Medicaid Expansion Work Group: 'More savings to be gained ...'

By Dr. David C. Pate, News and Community
January 16, 2013

I have previously shared my opinion, and St. Luke's position, that Medicaid expansion would be in the best interests of Idaho. Steve Millard, president and CEO of the Idaho Hospital Association, served on the governor’s work group that examined the issue and similarly has concluded, as did the work group, that expansion is in Idaho’s best interest. 

I asked Steve to write about how he and the work group came to this conclusion. Check out his report, below, and read this Idaho Statesman Reader's View by Dr. Ted Epperly, program director and CEO of the Family Residency Program of Idaho and another work group member, about why he recommends expansion of our Medicaid program. I agree completely with Dr. Epperly. 

I think that you will find Steve’s report and Dr. Epperly's conclusions compelling.  Thank you for this blog piece, Steve, and Steve and Dr. Epperly, for your service to Idaho on the work group.

When the U.S. Supreme Court ruled near the end of June last year that the Affordable Care Act was constitutional, they also ruled that the federal government could not require states to expand their Medicaid programs, thus making the expansion optional. 

This second part of the decision threw the hospital field a major curveball, because the Affordable Care Act is going to cut Medicare reimbursement to hospitals by $155 billion between 2014 and 2024 under the rationale that, with additional individuals receiving coverage through the insurance mandates and Medicaid expansion, hospitals will have fewer patients for whom they receive no payment.  For Idaho hospitals, that translates into Medicare cuts of $500 million over that time period. 

So now Idaho must decide whether to expand its Medicaid program. Gov. Butch Otter appointed a 15-member work group to study the issue and make recommendations. Because I represent Idaho’s community hospitals, I was appointed to the work group to provide that perspective.

There were other representatives of various organizations, including counties, corrections, physicians, and three legislators.  The work group met three times, each for an all-day meeting.  It received multiple presentations from the Department of Health and Welfare on how Medicaid works and the people who are recipients.  The department also contracted with Leavitt Partners and Milliman, Inc. to provide information on the demographics of the expansion population and the costs and savings associated with expanding or not expanding. 

We first learned that there is an expansion that is mandatory in addition to the optional expansion opportunity. Leavitt Partners estimated that 70,000 Idahoans would be in the mandatory expansion and are either currently eligible and have never applied for coverage, or will be newly eligible due to federally mandated changes in eligibility criteria. In the optional expansion population are 80,000 individuals, two-thirds of whom are the working and self-employed poor.

Milliman, Inc. was contracted to do a cost and savings analysis from an actuarial/financial standpoint. The mandatory expansion population is expected to cost the state around $284 million. Milliman found that by doing the optional expansion, the savings to the state and local governments would be greater. This is primarily because Idaho has a very costly county-based program that pays for indigent health care on an episodic basis, and it is estimated that about 90 percent of those qualifying for this assistance would be eligible under the optional expansion. Milliman projected the savings over 10 years for state and local governments under the optional expansion to be $290 million, saving over $6 million.

While there was an effort by the Department of Health and Welfare to conduct an economic impact study, it was determined that a comprehensive impact analysis at the micro level would take too long to be useful within the time frame for the work to be accomplished by the committee. However, economists from Boise State University presented what an analysis would look like in the event someone wanted to take the time and expense to have it done.

When my organization learned that there would not be any type of economic impact analysis done to help the work group understand the full picture, we commissioned an economist from the University of Idaho, who had been doing economic impact studies on the hospital field for several years, to conduct a macro-economic impact analysis using the numbers Milliman developed in their study. 

Milliman had estimated that by adopting the optional expansion of Medicaid, more than $9.2 billion in federal funds would come into Idaho over the 10-year period being considered. That is because the optional expansion would be at a 100 percent federal match, meaning no state dollars expended for the first three years and then the match dropping gradually each year from 2017 through 2024, when it would reach a low of 90 percent.  The federal matching rate for the existing Medicaid population is around 70 percent, with Idaho putting up 30 percent.

The University of Idaho economist estimated what additional savings and tax revenues would accrue to the state from nearly $1 billion per year coming into the state over the 10-year period by plugging the Milliman numbers into a 2010 IMPLAN economic input/output model for Idaho. 

Once that study was finalized, IHA’s Vice President of Finance Larry Tisdale put the economist’s results into the Milliman financial format, which reveals a totally different picture for the state of Idaho when considering the economic impact of these new federal dollars that would come into the state.

Instead of there being a $6 million savings to the state, the analysis showed total expansion costs (mandatory plus optional) of $1,017.9 million, compared with new taxes and savings of $1,640.2 million, for cumulative net savings from 2014 to 2024 of $622.3 million!

The bottom line: There are more savings to be gained, at less cost to Idaho taxpayers, by adopting the optional expansion rather than not doing so. The recommendation to the governor by the work group was to expand, but with certain caveats.

Here is what we said: “The committee universally supports expanding Medicaid coverage to the working poor, but also unanimously believes there must be significant conditions attached to the proposition.”

Those conditions were that the recipients of Medicaid benefits take on greater personal responsibility and accountability, and that the health care delivery system be redesigned to shift provider incentives from volume of visits to value of care by creating provider payment incentives to keep people healthy.

The cost of not expanding goes beyond what the state must pay to leverage the federal dollars and the administration of a program growing by 150,000 people.  

If part of the offset for that loss goes away by not expanding Medicaid, where do you suppose hospitals will find that money? They will be forced to raise their prices, the impact of which will land directly on insurers and businesses that provide health care benefits for their employees. 

The beneficiaries of expansion are not new people coming into the state. They are already here, and they receive health care services that nobody pays for now, or are paid by the counties and state through the indigent program. 

And here's what happens: These people do not have access to preventive health care, so when their conditions deteriorate to a certain point, they are forced to seek care in the most expensive setting, the hospital emergency room.


About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.