Study confirms Medicaid expansion costs LA more

Earlier this week, Louisiana’s Department of Health and Hospitals issued an updated report concerning eligibility expansion under the Patient Protection and Affordable Care Act (“Obamacare”). Utilized changed standards over the past three years in the analysis, while more optimistic than the report issued then, it still points to the wisdom of rejection of expansion.

According to it, in the scenario most closely matching the existing policy environment, the state is expected to spend from $197 million to $367 million less over that decade. In another scenario, which depends upon a very unrealistic rise in provider rates of 90-100 percent, costs were $1.7 billion greater over the decade. However, importantly any “savings” realized occur only in the first six years of the continued reimbursement rate and from thereon out the state pays increasingly more.

Besides a few procedural rulings that have changed since the law’s passage and its imperfectly reasoned reaffirmation by the U.S. Supreme Court, the most prominent factor in adjusting the estimates ironically has been the state’s implementation of its Bayou Health plan, a premium support plan with a substantial managed capitation program for those currently eligible for Medicaid that saved the state about $136 million (about 10.88 cents per enrollee) in its initial year of operation. In essence, it has made it cheaper to enroll incremental members into Medicaid and without that, given the projected number of enrollees under expansion in the realistic scenario (577,000) compared to existing enrollments (1.25 million), another $63 million annually would be saved or almost twice the optimistic realistic scenario.

But while the report does a serviceable job cranking out numbers given known parameters, along with previous efforts it makes some assumptions that do not appropriately account for environmental change if not are erroneous. To review:

The report assumes savings in state Disproportionate Share Hospital program-related payments as the uninsured population decreases, but these may not be realized in part or whole, or even increase because Obamacare raids Medicare for funding and its regulatory scope will discourage physicians from Medicaid participation, creating a shortage that will send many to emergency rooms for primary care. Even if somehow relaxation of laws to allow nurse practitioners to take up the slack can provide adequate supply, the disruption in continuity of care will reduce outcome quality and thereby increase costs on the back end.

Additionally, it makes a very questionable assumption that DSH payments decrease because of expected economic recovery that makes businesses more willing to expand provision of care insurance. Not only does this appear contradicted by growing evidence that businesses are trying to find ways to avoid having to provide this insurance, but that the cost of this insurance will grow rapidly in many states because of Obamacare, nationally estimated as almost a third higher in claims costs. In Louisiana, costs are predicted to rise nearly 29 percent. Not only will this discourage business from wanting to ensure, it will also affect the individual insurance market. All of this serves to increase the “crowding out” effect of the state-sponsored coverage poaching from the private sector, adding to the state’s costs

It also claims the typical 2.48 percent of spending represented by administrative costs disappear in many instances under the latest assumptions. A two-thirds reduction in the cost from previously seems dubious: even if every single new enrollee transfers into the managed capitation portion of Bayou Health, the contracting administrators will have to bear a cost concerning each of these and will figure this into their future bids. The supposed cost savings of a new information system also now are on hold, and it seems unlikely that administrative costs have disappeared altogether for overseeing the fee-for-service component to Bayou Health or for those clients remaining in legacy FFS Medicaid.

In addition, it completely discounts the negative impact that increased transfer of resources from the people to pay for it. The notion that the federal government match is money falling from the skies entirely ignores the fact that Louisianans, one way or the other, in part pay for it, likely creating an economic drag. The report does mention skepticism that suctioning money from the people into government, then returning it minus costs to the state to be spent on medical services materially will produce an economic benefit. But it’s likely to produce a net economic cost not factored into the analysis.

Finally, it also does not factor in the political environment by its setting in stone the federal Medicaid match rate that slides down and stays at 90 percent by 2020. As cost estimates of Obamacare continue to rise precipitously, pressure will grow on passing more of the burden onto states (at this time the adult match rates, which differ from state to state, are in the 50-70 percent range). A change of even a percentage point or two would cause the state to pay more, and several points would be a disastrous increase in state costs. Nor can the state opt out in the future. And it remains cost effective only so long as the match rate is not 90 percent or lower. The last fiscal year forecast, 2023, shows the state paying a minimum of $92.5 million more than by not accepting expansion, and increasing its loss rate at over 15 percent a year.

Thus, even if all of these probable outcomes do not manifest themselves, over the long haul the state pays increasingly more regardless. Naturally, ideological proponents of the expansion have trumpeted the front-loaded savings while conveniently ignoring the long-term net costs to infinity. But it could not be clearer from the results that Louisiana is a net loser by accepting expansion. Gov. Bobby Jindal continues wisely to reject it.