Arkansas Analysis Illustrates the Fiscal Benefits of Closing the Gap in Health Care Coverage

Tuesday, July 24, 2012 at 8:17 PM by

Comprehensive Analysis of Costs and Benefits Calculates a $372 Million Gain

The Medicaid expansion authorized by the federal health care reform law is a great deal for the states. That conclusion was recently reinforced by a fiscal analysis by the state of Arkansas, which found that using the Affordable Care Act to close the gap in adult coverage in that state would yield the state treasury an estimated net gain of $372 million over the first six years of implementation.

The Arkansas analysis takes into account that there would be added Medicaid costs to the state because of enrollment growth among already-eligible adults and children, as well as newly-eligible adults. Notwithstanding the costs for those who are already eligible (which I think should be analyzed separately), their fiscal estimate concluded that the net budget impact would be positive because of the following factors:

  • 100% federal funding for the newly-eligible adults during the period 2014-2016 (followed by a phase down to 90% federal funding).
  • Close to $100 million saved each year because of reduced state spending for uncompensated care and a higher federal match rate for medically needy adults (who currently spend down to eligibility).
  • More than $32 million per year from higher state tax revenue resulting from an influx of federal dollars.

The Arkansas analysis doesn’t account for savings in state or local spending for people with mental illness. Nor does it account for any savings from reforms in the treatment of people dually eligible for Medicaid and Medicare or from an increase in the federal share of spending for kids in the Children’s Health Insurance Program (CHIP), beginning in FY 2015. And I think it makes sense to exclude those savings since that will be independent of the Medicaid expansion.

A very good summary of the Arkansas analysis can be found in a Washington Post column last week.  As the second graph in that column illustrates, the state share of the cost gradually climbs after the first few years, and by 2021 there would be a small net cost for the state (about $3 million per year).

When Wisconsin conducts an objective analysis of the budget effects of using the ACA to cover  adults without dependent children to 138% of the federal poverty level (FPL), I think the net results will be roughly comparable to the projected fiscal gain in Arkansas.  However, there are a number of significant differences between the calculations for Wisconsin and Arkansas:

  • Wisconsin won’t have any newly eligible parents (which should hold down one cost factor, relative to Arkansas).
  • Another factor holding down our costs is that Wisconsin already covers childless adults (even though that number has been shrinking rapidly), and we will get a higher federal match rate for the cost of those adults than our state currently receives.
  • On the other hand, it’s still unclear what our state’s match rate will be for childless adults (i.e., whether we will start at the 100% federal match rate for all the childless adults or just for those that weren’t already served by BadgerCare Core).
  • Policymakers here can generate savings by ending or changing current BadgerCare coverage for adults over 138% of FPL – either by moving them into subsidized coverage through an exchange or by using the Basic Health Plan option (which is likely to be a very attractive option fiscally for states that want to protect their current coverage).  
  • Our state might not pick up as large a share of the cost of hospitals’ uncompensated care as in Arkansas (though uncompensated care significantly increases the state or local government share of health insurance costs for public sector employees, so reducing cost shifting that results from uncompensated care should yield savings in that area), and I don’t think there would be any savings in our state related to the medically needy population.  

In contrast to the Arkansas fiscal estimate, I think Wisconsin should put to the side the cost of covering already-eligible adults — to the extent that the increase in their coverage results from parts of the ACA that are independent of the state’s decision about closing the gap in BadgerCare coverage.  For the same reason, I think some of the ACA cost-saving factors (like a higher CHIP match rate) should also be treated separately.

Although we might quibble with a few of the details, the Arkansas analysis does a great job of illustrating the sort of comprehensive examination of the fiscal impacts that our state should engage in as we consider whether to use the funding in the Affordable Care Act to close the current gap in BadgerCare coverage for adults without custodial children.

Jon Peacock

One Response to “Arkansas Analysis Illustrates the Fiscal Benefits of Closing the Gap in Health Care Coverage”

  1. christine says:

    The health care coverage provided by the different insurance companies vary and you should be well aware of what they are.