The Status of Medicaid Expansion, and Why It Will Keep Getting Better

Medicaid is already the largest insurer on the planet, and the Affordable Care Act (ACA) is driving enrollment faster than anyone imagined.  But there are headwinds in covering more Americans through Medicaid, some political, some operational.  Here’s why it will continue to improve and drive expanded coverage for the uninsured — and why all insurers need to participate to remain relevant to the new American healthcare landscape.

Twenty-six states have expanded eligibility under the ACA to everyone with incomes under 138% of the federal poverty level, or about $16,100 for an individual. April’s Medicaid enrollment report from CMS showed a year-over-year increase of over 6 million, a 10.3% increase.  Much of this is due to the “woodwork effect” — folks heard about ObamaCare, applied through the exchanges, and found they were Medicaid eligible.  It doesn’t count nearly a million Americans who gained coverage under the ACA’s “early option” or a waiver.

Predictably, enrollment has grown much faster in Medicaid expansion states (mostly Blue) than in states that have not expanded Medicaid (all Red): 15.3% in expansion states, but only 3.3% in non-expansion states.

Nine out of 24 states that had Medicaid expansions in effect in April experienced an enrollment increase of 25%.  Ironically, many states with the largest Medicaid enrollment growth also had the most dysfunctional exchanges: Oregon at 49.4%; Nevada at 41.1%, and Maryland, at 29.7% growth.

The problem has been that between exchange dysfunction, weak infrastructure, and a culture in many state Medicaid agencies of creating barriers to enrollment rather than the ACA’s policy of “no wrong door”, more than 1.7 million are still waiting for their applications to be processed — with some stuck in limbo for as long as eight months. The scope of the issue varies widely: California accounts for 900,000 applications pending as of early June; Illinois has 283,000 cases pending, while New York has no backlog at all. All three states have implemented the ACA’s expansion of Medicaid.  Even some big Red states that chose not to expand have enrollment pileups, including North Carolina (170,000 applications pending), Georgia (100,000), and South Carolina (62,000).

Matt Salo, executive director of the National Association of Medicaid Directors, thinks the worst is over. He said the computerized handoffs from the federal exchange are occurring more quickly and states are getting more data to approve or deny applicants.  “I don’t want to say it’s been solved,” he said, “but it’s definitely getting a lot better.”  One measure: Publicly-traded health plan Medicaid revenue grew 19% in the first quarter of 2014, demonstrating the enormous economic opportunity from the expansion and the woodwork effect.

So if the backlog is largely resolved by the next open enrollment period this fall, the next big question is what about the 24 holdout Red states, the ones whose governors like Rick Perry (TX) and Bobby Jindal (LA) seem hell-bent on throwing a middle finger at the White House while thousands of their constituents literally die because of inaction.  Speculation is that a growing number of Red states will fold and take the Medicaid expansion money — but not until after the midterm elections.  Here’s why:

• Funding:  the Feds are funding 100% of Medicaid expansion through 2016, scaling down to 90% in 2020+. While the initial ACA backlash may have provided cover for states not to expand, it will be increasingly difficult to continue to defend not taking the federal money to insure a significant population group.  Remember, Red states have the highest rates of uninsurance per capita, largely due to their historically stingy Medicaid programs.
• Access: most states that choose not to expand created a significant coverage gap. This happens because subsidies on the exchange are available from 100%-400% of the Federal poverty limit, but not below that, leaving a low-income population paying significantly more for healthcare coverage.
• “You’re Still Paying for It”: The ACA funds Medicaid expansion largely from tax revenue. States like Texas and Florida are among the highest contributors to general tax revenue and have the highest number of uninsured population.  They are helping to fund Medicaid expansion for other states via higher income taxes, yet not receiving any of the benefits for their own population.  Medicaid accounted for about two-thirds of all federal funding to states in 2014, up from 43 percent two years ago.
• Hospitals: hospitals traded in insufficient DSH funding and bad debt for Medicaid or exchange coverage in the ACA.  Hospitals in Red states that didn’t expand Medicaid are now reporting they can’t even issue bonds for capital projects, and are dying on the vine as the DSH funds are taken away without a substitute.  Considering hospitals are often the largest employers in their communities, and especially in rural Red states, their lobbying might is expected to break anti-ObamaCare partisanship after the elections are over.

I’m not as optimistic as some on Wall Street that all RedGovs will fold in the face of these arguments, but suspect that several more will as we head into 2015. And given the central and growing role Medicaid plays in healthcare financing, health insurers are awakening to the fact that if they’re not in it, they won’t be around long.

Resources

Medicaid health plans must be able to navigate through State and Federal regulations and work well with State agencies. GHG can help, find out how >>