Higher Costs for Obamacare’s New Medicaid Patients

Those new checkups are forcing the government to write bigger checks—at least for now.

The costs of treating people newly covered under Obamacare’s key Medicaid component are “substantially greater” than the costs of caring for people previously eligible for that health-care program for the poor, and also much higher than had been previously projected, a new government report reveals.

Last year, the average benefit costs for adults newly eligible for Medicaid were an estimated $5,517 per person, the report by the Office of the Actuary at the Centers for Medicaid and Medicare Services found.

That’s 19 percent higher than non-newly eligible adults, whose average benefit costs to Medicaid in 2014 were $4,650.

The government previously had estimated that newly eligible Medicaid enrollees would cost 1 percent less on average than already eligible people in 2014, the report noted.

The higher-than-expected costs last year were due in large part to pent-up demand for health care among the newly eligible that was greater than states had projected, as well as those new enrollees who were in many cases sicker than had been projected, leading to higher health bills, the report said. About 4.3 million newly eligible adults enrolled in Medicaid in 2014, compared with more than 70 million people overall in the program.

But there’s potentially good news coming related to the newly eligible. The actuary estimates that after 2014, newly eligible adults will cost Medicaid less than previously eligible people.

This year, newly eligible adults are expected, on average, to cost $4,218 in benefits compared with $4,817 on average for previously eligible adults. There will be an estimate 7.4 million newly eligible adults in the program this year.

In 2023, the gap is projected to widen further, with newly eligible enrollees expected to cost $5,076 on average in benefits, compared with $7,299 in average benefit costs for previously eligible adults. In that year, the report projects, 11.9 million newly eligible adults are expected to be enrolled in the program, which is about 700,000 fewer people than had been previously estimated.

However, there is one big caveat in the report: data for newly eligible adults is still limited.

“There is still considerable uncertainty about the health-care costs of newly eligible adults in 2014, as well as for future years,” the report said, citing a lack of some information about health status, demographics and claims related to the newly eligible.

The costs of the newly eligible are of concern because the federal government is bearing 100 percent of the costs of insuring that population through 2016. After that, the federal government’s share of the costs will drift down, but to no less than 90 percent of the costs—individual states will pay the difference for the newly eligible.

Total Medicaid spending by all states, which includes their share of the newly eligibles’ benefits, will be an estimated $317.7 billion in 2022. That’s more than 7 percent lower than the $342.5 billion that the actuary previously projected states would spend on the program that year.

Medicaid expansion is a key component of the Affordable Care Act’s goal of increasing the number of Americans with health coverage. As originally designed under the ACA, nearly all adult Americans who have a household income of below 138 percent of the federal poverty level, or $27,734 for a family of three, would be eligible for the program.

Previously, states often had much tighter income restrictions on adults participating in the programs, with many states barring adults without dependent children altogether from Medicaid, which is jointly run with the federal government.

A 2012 Supreme Court decision ruled that the federal government could not compel states to expand Medicaid. So far, 29 states and the District of Columbia have adopted Medicaid expansion, two states are actively contemplating expansion and 19 states have so far rejected expansion.

The Obama administration has been urging the remaining states to expand Medicaid, saying it would not only bring economic security to many uncovered poor people, but also would be a financial windfall to individual states in the form of increased federal spending that would benefit hospitals, doctors and other medical projects. The administration says Medicaid expansion will create $62 billion in total economic activity in states that have expanded by 2017, boosting employment by an estimated 172,000 jobs in expansion states as of 2015.

“As it has for the past 50 years, the Medicaid program remains a foundation of our health-care system by providing health coverage to individuals who would not otherwise have access to affordable health-care services,” said CMS spokesman Aaron Albright, when asked about the actuary’s report.

But a leading Medicaid expansion critic said the report was more evidence against the wisdom of the program.

“The revision up should not have been a surprise to those familiar with history,” said Joshua Archambault, senior fellow at the Foundation for Government Accountability. He added that the foundation “has been writing for years now about previous Medicaid expansions and the significant deleterious impact on taxpayer-funded budgets. Sadly, our projections have become a reality.”

“The impact of the cost overruns of Obamacare’s Medicaid expansion at the state level is often easier to comprehend than numbers with lots of zeros in a long federal report,” Archambault said.

For example, he said, Medicaid expansion in Ohio has run $1.5 billion over budget so far, Washington state has had to boost its biennial budget by $2.3 billion “solely due to higher-than-expected” expansion costs, and Illinois’ expansion ran $800 million over budget last year.

“The destructive fact of cost overruns due to Obamacare’s Medicaid expansion will be less money for education, public safety and roads. In addition, when state lawmakers balance their budget, they will put the most vulnerable already on Medicaid on the chopping block first, and protect the able-bodied childless adults that are part of the Obamacare expansion—this is a result of the perverse funding structure in the ACA.”