Medicaid and Insurance and Government Health Care and Health Care & Life Sciences and Health Care & Insurance

Report: Medicaid expansion could juice economy

April 15, 2013

Proponents of a Medicaid expansion in Indiana are playing up the economic boost the state and its businesses could see from the expansion of health insurance coverage called for by President Obama’s health reform law.

A Medicaid expansion could inject $1.3 billion annually into the state's economy, leading to the creation of 16,400 new jobs, according to a new study by the left-leaning advocacy group Families USA.

Those numbers, while substantial, are actually lower than a February study sponsored by the Indiana Hospital Association, which predicted $3.4 billion in economic activity and more than 30,000 jobs created by 2020.

“From an economic standpoint, expanding the Medicaid program is a no-brainer,” said Ron Pollack, executive director of Families USA, which is based in Washington, D.C., during an April 12 teleconference.

The study, released on April 12, used an economic impact model developed by Regional Economic Model Inc., to estimate how much of the federal money that would support a Medicaid expansion would stick in the Indiana economy.

The study is the latest piece of evidence cited by supporters of a Medicaid expansion to convince employees and business groups to support the expansion. Previous studies sponsored by the Indiana Hospital Association and Jackson Hewitt noted that employers would see their costs for health insurance decreased or moderated.

Indiana Gov. Mike Pence has been reluctant to expand Medicaid, which is a health insurance program for the poor jointly funded by each state and the federal government. In Indiana, the state spends nearly $2 billion per year on Medicaid—roughly half of what the federal spends to support the Indiana Medicaid program.

The health reform law called for all states to expand eligibility for Medicaid coverage to residents making 138 percent of the federal poverty limit, or about $31,800 for a family of four. Indiana’s Medicaid program already covers children and pregnant mothers above that threshold. But it only covers adults without kids who earn less than 25 percent of the federal poverty limit, or about $5,800 per year.

Those new rules would make more than 500,000 Hoosiers newly qualified for Medicaid coverage.

And under the Affordable Care Act, the federal government would pay for that expansion in full for the first three years and would then step its support down to 90 percent—still much higher than its current level of support for Medicaid coverage.

Still, the annual costs to Indiana would range from $50 million to $140 million, according to various estimates that have been produced in the past year.

Pence has worried out loud that the costs of a Medicaid expansion would grow over time—either because of higher-than-expected costs or because the federal government’s promised support will prove unsustainable.

"Left unchecked, the meteoric rise in Medicaid spending will consume more of our budget, leaving less for roads and schools," Pence wrote in an op-ed column in IBJ on April 6.

And business groups, in spite of the appeals of groups like Families USA, remain skeptical.

“Some of the benefits are undeniable,” said Mike Ripley, a health care lobbyist at the Indiana Chamber of Commerce, noting the potential for additional jobs and economic activity. “But I tend to be more pessimistic because I haven’t seen the federal government do anything that has saved anybody any money—in general.”

“The federal government’s broke now, and we haven’t even seen the impact of what Medicaid and the health care expansion is going to do. Are they even going to sustain this thing for the long term?" Ripley added. "I’m not so sure.”

The Indiana Chamber has supported Pence’s preferred option, which is to expand Medicaid coverage by negotiating a block grant of funding from the federal government, which would cap the state’s exposure to future costs, and by using the Healthy Indiana Plan, which uses health savings accounts to provide health insurance to low-income Hoosier adults.

Hospital groups also support Pence’s idea to use HIP to expand Medicaid coverage. It is estimated Pence’s plan would cover more than 400,000 Hoosiers who are currently uninsured.

But during the Families USA teleconference, some Indiana groups said it would be better for Indiana to expand its traditional Medicaid program, and not use the HIP program. HIP currently covers about 40,000 Hoosiers.

“Faith leaders are concerned whether HIP can expand to cover up to 450,000 Hoosiers,” said Dan Gangler, director of communication for the Indiana Conference of The United Methodist Church. He added, “We’re also worried about the real risk that the federal government will reject this approach, since it includes upfront contributions and caps on coverage not required anywhere else in the country.”

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