Analysis: Feds likely to cut Medicaid support

March 11, 2013

A fellow conservative provided some support for Gov. Mike Pence’s claim that an expansion of Medicaid will become a “baby elephant” that eats up larger and larger shares of state resources.

Charles Blahous, a former economic adviser to President George W. Bush and now a Medicare trustee, published an analysis March 4 that contends federal support for the Medicaid expansion will not hold up given the bipartisan push for budget cuts.

Medicaid is a health insurance program for the poor funded jointly by each state and the federal government. In Indiana, the federal government pays about two-thirds of Medicaid’s costs.

Blahous notes budget-reduction plans from three different sources in Washington—from President Obama, the Simpson-Bowles commission and the House Republicans—all include at least $100 billion in Medicaid spending reductions over the next decade.

If that amount of reductions were passed on to the states, he estimates, it would actually exceed the amount each state would have to spend to expand Medicaid as called for by the 2010 federal health reform law. The law calls for the federal government to cover 100 percent of the expansion costs beginning in 2014 but then gradually reduce its support to 90 percent of the costs by 2020.

“From a practical perspective, it is quite unlikely that the federal government will make the full amount of Medicaid payments now scheduled under law,” wrote Blahous in his report, which was published by the Mercatus Center, a free-market think tank housed at George Mason Unviersity.

“States cannot therefore afford to assume that their Medicaid cost increases will be limited to those directly spelled out in the language of the ACA,” added Blahous, using a common acronym for the Patient Protection and Affordable Care Act of 2010. “They face substantial projected Medicaid cost increases under prior law as well as other unspecified but reasonably likely shifts of costs currently borne by the federal government."

Blahous’ report drew few critical responses, but his analysis does not really change the main argument of proponents of the Medicaid expansion: that it’s still too good of a deal to pass up.

A February study by the Indiana Hospital Association estimated that Indiana would spend $503 million over seven years to expand Medicaid eligibility up to 138 percent of the federal poverty limit, as called for the in the Patient Protection and Affordable Care Act.

In return, the expansion would draw down $10.5 billion over seven years—or a federal match of nearly $21 for every state dollar spent.

The hospital association also contends that a Medicaid expansion would boost Indiana’s economy, help protect rural hospitals from closure and reduce private insurance premiums.

Other analyses have been less rosy. Milliman Inc., the Seattle-based actuarial firm hired by the state of Indiana, estimated that a Medicaid expansion would cost the state an average of $140 million per year from 2014 to 2020—about twice as much as the hospital association’s estimate.

Pence, a Republican, has said Indiana will not expand its Medicaid program unless the Obama administration allows the state to do so using the Healthy Indiana Plan, which gives low-income Hoosiers health savings accounts to pay for medical care.


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