Missouri Medicaid expansion: Can the state afford it?

Austin Huguelet
Springfield News-Leader

This time next week, Missouri voters will have made their decision on Medicaid expansion.

If it’s a yes, a News-Leader review of available research suggests patients will have better access to care, see their financial health improve, and in some cases, add years to their lifespans.

Hospitals, too, stand to benefit, and expansion could lead to gains in health care jobs.

But now, it’s time to ask another question: What’s it going to cost?

The answer is a little more complicated. There are Missouri-specific analyses, but all are projections based on assumptions at this point.

Research from other states suggests the impact on Missouri's budget may be positive, at least in the intermediate term. But there are also potential costs and benefits to taxpayers beyond the state budget impact, some of which will boil down to personal philosophy.

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The Missouri studies

Here’s what Missouri voters will read about cost on the ballot: “State government entities are estimated to have one-time costs of approximately $6.4 million and an unknown annual net fiscal impact by 2026 ranging from increased costs of at least $200 million to savings of $1 billion. Local governments expect costs to decrease by an unknown amount.”

Beneath the hood of those two sentences are two sets of calculations.

The first comes from the Department of Social Services, which houses Missouri’s Medicaid program.

DSS said expansion would require hiring new employees and increase the costs at its call centers and with its information system. Overall, the department predicts the expansion in eligibility will cost more than $2 billion per year.

The federal government pays 90% of that under current law, but the state pays for the rest, so DSS estimates an impact of $200 million or more on general revenue.

That would be a hefty sum — it’s more than double the amount in annual basic aid sent to Missouri State University in recent years — and Missouri’s constitution requires a balanced budget, so it’ll have to come from savings elsewhere in the budget.

Republican lawmakers have almost uniformly said that means cuts to education and transportation.

But researchers at Washington University in St. Louis, Tim McBride and Abigail Barker, say savings may come from expansion itself.

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Here’s that logic: They estimate the new enrollees will generally cost less per month than the state estimates, so they end up with a cost of roughly $1.2 billion — of which about $120 million would be the responsibility of the state.

Then, they assume that substantial numbers of people who would otherwise enroll in Missouri’s existing programs will enroll as expansion patients instead.

That’s key — the state pays for 35% of those existing programs, but only 10% of expansion enrollees, so if they’re right, that would effectively shift costs to the federal budget that would otherwise come from state coffers.

One example they give of how that might happen involves a patient with a disability.

Currently, that person can apply for disability coverage, but there’s a long application that’s tough to get through.

But under expansion, if the person's income is 138% of the federal poverty line or less  — $17,600 per year for an individual or about $36,150 for a family of four — they could enroll based on that criteria instead.

The researchers estimated that sort of “cost-shifting,” plus savings from a decline in uncompensated care, could actually mean the state shaves $38 million off its obligation in the first year and even more as time goes on.

Even in their least optimistic scenario where more people enroll, patients cost more and cost-shifting is less effective, as DSS anticipates, the Washington University report estimates Year 1 expansion costs at $42 million.

By 2024, the report projects savings totaling $932 million.

Now, there's one big disclaimer for both analyses: they were done before the pandemic put millions of people out of work, at least temporarily.

In a call with reporters in late June, McBride, a health economist at Washington University, said if the economy recovers fairly quickly from the damage of the pandemic, the numbers in the report he co-authored will be fairly accurate.

But if the economy is still in diminished shape when expansion takes effect in July 2021, more people may be eligible than anticipated, which could potentially drive up the cost to the state, at least until the economy rebounds.

Abigail Barker, another Washington University researcher, said that won't necessarily cancel out savings on uncompensated care and other change, though.

"The overall shape of the result is just not that sensitive to changes," she said.

What happened in other states?

That said, research in the dozens of states that have expanded Medicaid suggests that the Washington University study is on the right track.

A Commonwealth Foundation review of impacts published in May linked expansion to a sizable enough reduction in state spending on traditional Medicaid that it offset costs at least as of fiscal year 2019, though some savings came during years the federal government was paying for 100% of expansion costs.

The review found savings in "cost-shifting" from existing Medicaid programs as well as state-funded mental health and substance abuse treatment and inmate care. Some states have also been able to reduce the amount they pay health care providers to offset uncompensated care.

A review of state spending by the Kaiser Family Foundation last year found most expansion states relying on general state revenue to finance their share of the state expansion costs.

But Kaiser researchers also noted that a number of states were covering that with taxes assessed to health care providers who benefit from expansion and other savings achieved through expansion.

Not every state appears as under control.

Conservatives have cited New York as a distinctly troubling example.

Sen. Bob Onder, R-Lake St. Louis, pointed out in a forum last week that earlier this year, New York Gov. Andrew Cuomo, a Democrat, called his state’s Medicaid costs “unsustainable.”

It’s not clear that even an expanded Missouri program would match New York’s, which was known for high costs and generous benefits well before expansion.

But expansion proponents here have at least acknowledged the cost concern in pointing to how more conservative states have handled the program.

A January 2020 report from Health Management Associates commissioned by the Missouri Hospital Association, which supports expansion and whose members would benefit, highlighted the red states of Arkansas, Indiana and Ohio.

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Like the Washington University researchers, the report assumed benefits from “cost-shifting," and they also suggested that more people seeking health care would boost sales tax revenue and create jobs.

But the report authors also framed expansion as an opportunity to force changes to how the state pays for care and encourage providers to minimize costs.

“A well-designed and implemented program will create new economic opportunity for the state and its citizens,” Matt Powers, one of the study’s authors, said in a statement.

Other costs

Of course, those analyses don’t take every impact into consideration.

For example, none of them discuss the impact of expansion on the federal debt.

And in their latest review of more than 400 studies related to Medicaid expansion, researchers at Kaiser Family Foundation noted, “There is limited research examining the fiscal effects of the Medicaid expansion at the federal level.”

Conservative opponents have supplied their own points on the matter, framing Tuesday’s vote as a choice, at least in part, of whether or not to contribute to the federal debt, which is more than $20 trillion at this point.

And even McBride, the Washington University health care economist who co-authored the report predicting savings for Missouri, conceded there's truth to that point.

He noted that Medicaid expansion is hardly the only contributor to the federal deficit, though.

He also pointed out that in a growing economy like the one the country saw before the COVID-19 pandemic, growing revenues can offset the effect of deficits and debt, and even in a slower economy, it remains to be seen whether the debt leads to damaging inflation.

There is available research suggesting the government gets some return.

In Louisiana alone, researchers at Louisiana State University found expansion supporting 14,000 jobs, including 6,000 in health care, in 2018 and 2019. And in 2016, researchers at Colorado State University linked expansion in that state to more than 31,000 additional jobs across the board.

Studies in Ohio and Michigan have also suggested that expansion makes it easier for enrollees to seek work themselves.

And supporters like Rep. Crystal Quade, D-Springfield, see that as a pretty good deal.

“We are providing health care for people without health insurance and we are providing healthier workers who can continue to pour into the economy,” she said.

Rep. Crystal Quade, the Missouri House Minority Leader, answers questions during a press conference with the Democratic Caucus at the Missouri State Capitol in Jefferson City on Wednesday, Jan. 9, 2019.

Vocal critics of expansion like Rep. Steve Helms, R-Springfield, say Medicaid expansion is the worst, costliest way to do that, though.

In an interview, Helms contended expansion also ignores opportunities to reduce costs for patients in other ways, such as forcing hospitals to be more transparent about their pricing and truly commit to driving it down.

“The problem with this whole thing is that it’s going to perpetuate the issues of the existing system,” he said.

But Dan Ponder, a political scientist at Drury University, said expansion doesn’t really prohibit things like additional accountability for hospitals, either.

Ultimately, he added, voters will have to weigh the costs and what they truly value.

On one hand, expansion may contribute to the federal deficit, he said. On the other, so did the 2017 tax cuts, which have disproportionately benefited wealthy Americans.

“So cutting the deficit may be good, but then, why should in-need, at-risk Missourians have to pay that price with their health?” Ponder said. “And you might say, well, Missourians will be spared tax increases, and that may be true. But then you have to weigh those impacts.”

Austin Huguelet is the News-Leader's politics reporter. Got something he should know? Have a question? Call him at 417-403-8096 or email him at ahuguelet@news-leader.com. You can also support local journalism at News-Leader.com/subscribe.