Louisiana: Medicaid expansion, Woodworkers and the budget dilemma

I've writte a lot about the so-called "woodworker effect" with Medicaid expansion over the past 2 1/2 years: People who were already eligible for Medicaid before the ACA, but who never signed up for it for a variety of reasons (they didn't know they qualified; didn't know the process for signing up; were too embarrassed to do so; etc etc). I estimated about 3 million "woodworker" enrollees in 2014, although I downshifted that later on and now have the tally estimated at around 3.8 million nationally as of the end of 2015. That's a lot of people being added to the system who would have been eligible for Medicaid even if the ACA had never been passed.

Last week, a major report from the National Bureau of Economic Research confirmed what I've been saying all along (although their estimates are somewhat lower--around 2 million in 2014 plus an unknown number for 2015), which was written about in a feature story by Kimberly Leonard of U.S. News & World Report.

As of this writing, 19 states have still refused to expand Medicaid via the ACA, even though the federal government would pay for a minimum of 90% of the cost (100% through the end of 2016; 95% in 2017, 94% in 2018, 93% in 2019, and then 90% level from 2020 on). Many have been scratching their heads over this, since you'd think that this would be a no-brainer in terms of balancing the state budget: A windfall of federal dollars pouring into the state.

For the most part, this stubbornness has been chalked up to sheer, blind, kneejerk partisan (and/or racial) hatred of All Things Obama-related: If he's offering it, we must refuse! And, for the most part, I agree with this analysis. It certainly helps explain why some GOP-controlled states have come around over the past two years as their legislature and/or governor thought about the offer more thoroughly.

However, there actually is a legitimate (if weak) financial argument to be made against ACA Medicaid expansion...assuming, of course, that you don't care a whole lot about the value of human lives, that is. As RIchard Mayhew points out over at Balloon Juice:

The most interesting angle to me is how does this outreach change the Medicaid cost savings for Louisiana. The woodworkers have a FY2017 62/38 Federal/state split on their costs. The Expansion eligible individuals have a CY2016 100/0 split on their costs. A large rush of legacy woodworkers will eat up most of the cost savings gained through lower charity care appropriations, and shifting of voluntary Legacy Medicaid qualified individuals to Expansion eligibility groups.

This is a good problem to have, as more people covered with the Feds picking up most of the tab is a good thing in and of itself. However the problem is Louisiana has a balanced budget constraint and a large structural deficit. Medicaid expansion is taking a decent chunk out of the structural deficit caused by Jindal’s decision to destroy Louisiana to boost his Presidential chances but a 100% Medicaid Eligibility uptake rate would take away most of the savings.

Here's what Mayhew is talking about.

As of February 2016, Louisiana had about 1.07 million people enrolled in traditional Medicaid, at an average cost of around $4,900 per person per year. That's around $5.2 billion per year. The feds cover 72% of that, leaving the state with an annual Medicaid bill of around $2.0 billion.

There's roughly 375,000 people eligible for ACA expanded Medicaid in Louisiana. Assuming every single one of these people signs up, the cost to the state would be $0 this year, and no more than $184 million per year in the future (of course, this assumes a similar $4,900/year per enrollee, and also assumes that this average doesn't increase every year, which obviously it will; stay with me, I'm just trying to illustrate a point). Providing coverage for such a low cost (to the state) to so many people will save a ton of money, right? Yes, that's true...for the most part. Let's say that it saves the state $200 million per year in various & sundry ways (and yes, I'm making that number up for illustration).

However...let's say that there's another 100,000 more who are eligible for traditional (not expanded) Medicaid, but aren't enrolled for the reasons noted above: Lack of awareness, societal stigma, whatever.

Due specifically to the massive education/outreach efforts involved in Medicaid expansion, a lot of these people will find out that they qualify, get over their concerns about the "stigma" and sign up. This has been proven conclusively by all of the examples I've provided over the years as well as the NBER study referred to above: It's happening on a large scale in other expansion states, so there's every reason to assume it will in Louisiana as well.

Except that these 100K people will be enrolling in traditional Medicaid...where the state has to cover 38% of the cost. That's around $190 million per year to the state.

This means that in terms of sheer budgetary numbers, ACA expansion would play out as follows (starting in 2017, assuming 100% of each population signs up by the end of 2016 and stays on Medicaid):

  • 2017: $200 million saved - $25 million expansion cost (5%) - $190 million woodworker cost = $15 million extra cost to the state
  • 2018: $200 million saved - $30 million expansion cost (6%) - $190 million woodworker cost = $20 million extra cost
  • 2019: $200M saved - $35M (7%) - $190M = $25 million extra
  • 2020/beyond; $200M saved - $50 million (10%) - $190M = $40 million extra

Again, this isn't a huge amount of cost to the state, but it's also based on some huge unknowns (100K woodworkers eligible, a static $4,900 cost per enrollee, a flat $200M savings per year and so on).

In practice, most of the states which have expanded Medicaid have still seen a net savings, sometimes to the tune of hundreds of millions of dollars...but this at least partially explains the reluctance of some states to do so.

Of course, as noted above, not doing so also means not only giving the finger to those 375,000 residents, but also means continuing to hope that the 100K potential "woodworkers" don't wise up anyway and sign up for Medicaid regardless.

As I wrote almost exactly 1 year ago:

Here's the thing, however: When you invite 200 people to your wedding, you have to budget for the possibility that all 200 will show up. Sure, there's a few who you know won't come (that 3rd cousin who lives overseas who you only invited because your mother insisted), but beyond that, you can't just say "oh, 25% of them probably won't show up so we'll only contract with the caterer for 150 meals". That doesn't mean that you should pay for 50 chicken dinners which have to be thrown out; order, say, 170 and make some sort of contingency plan just in case the other 30 show up as well..and for the love of God, at the very least make sure that the banquet hall can hold 200.

The difference is that unlike wedding invitations where you can have people RSVP before you commit to a number of dinners, you have no way of being sure how many potential Medicaid enrollees might take you up on the offer until after the fact.

As a sidenote, I'm confused by one part of the Times-Picayune quote used in Mayhew's piece:

DHH officials had previously said they would use a "fast track" approach to Medicaid expansion enrollment, but the food stamp enrollment is particularly significant because the federal government had never before approved using food stamp data to qualify Medicaid recipients.

I'm not sure I follow this, because to the best of my knowledge, at least 3 other states have already used the "food stamp data" method already: