Published May 27, 2014
It’s widely accepted that consumers will likely face higher health insurance premiums under the Affordable Care Act over the next few years due to inflation within the health-care industry and the wider availability of care nationwide. But another medical-related government program might also cause their taxes to rise: Medicaid.
Medicaid enrollment has increased due to the expansion of the program and the individual mandate, and the growth is weighing on states’ budgets.
The ACA allows states to expand Medicaid eligibility to those who are making 138% of the federal poverty level, which is about $16,100 annually. The federal government picks up the cost through 2016, and then it drops down to 90% in the following years. About half of states nationwide have expanded their Medicaid programs.
Analysts say that those who are not enrolling due to this expansion are the ones weighing most heavily on state budgets. Devon Herrick, senior policy analyst at the National Center for Policy Analysis, says this is called the “woodwork effect.” Pre- ACA, there were about 50 million people who were uninsured, and about 12 million who were Medicaid eligible, but unenrolled.
“It was a pain to enroll, and if they got sick, they could always enroll after the fact,” Herrick explains. “Now, states are required to have a one-stop shop to screen you for Medicaid and subsidies. And under the individual mandate, they have to enroll.”
The individual mandate requires every person in the country to have insurance by the end of open enrollment period—which passed on March 31—or they will face a fine of $95 a year or 1% of their annual income for failing to comply. Herrick points out that those Medicaid enrollees who are not a part of the expansion are only being covered by federal reimbursements of up to 60% on the high end, which is what is costing states more cash than anticipated.
In some states like Rhode Island, for example, reports state that an extra 5,000 to 6,000 people signed up for coverage than previously anticipated. And in California, an extra 300,000 already-eligible people are expected to sign up than what was estimated last year.
But states can, and should have, budgeted for the increase, says Judy Solomon, vice president for Health Policy at the Center on Budget and Policy Priorities. The Congressional Budget Office projects an extra $46 billion in costs nationwide for Medicaid, out of a total $2.9 trillion in the next 10 years.
“Most states budgeted for this—but states that did and did not expand,” Solomon says of the Medicaid program. “For example, when CHIP [Children’s Health Insurance Program] was enacted in 1997, it brought in a lot of children who were already eligible for Medicaid. The phenomenon was outreach and the mandate, but there was always the assumption that people who were eligible would enroll.”
Herrick predicts the extra cash needed to cover the increased enrollment will either come in the form of cuts to educational programs or increased taxes.
“Medicaid and education typically run neck-and-neck for the most expensive things that states pay for,” he says. “It’s typically about 20% of a state’s budget for Medicaid and education isn’t far behind. The hard choice will be whether they should cut back on programs or raise taxes—I think they will do both.”
Tax increases will likely hit states over the next two to three years, Herrick says, especially as Medicaid expansion reimbursements fall from 100% to 90%.
“Medicaid consumes nearly one in four dollars of state budgets. If the cost of Medicaid rises by 25% over the next couple of years, states will have to boost taxes between 5% and 10%,” he says.
But Solomon says not so fast.
“I think it will depend on the state,” she says. “States deal with their budgets annually, so there are many variables here—costs in one program go up, costs in others go down. Unless a lot of other things happen, in terms of costs going up, it won’t be an overwhelming new cost in the Medicaid program.”