Discrepancies in what reports say Medicaid expansion will cost states

The Affordable Care Act (ACA) will cost states $118 billion through 2023, according to the March 2011 Joint Congressional Committee report, Medicaid Expansion in the New Health Law: Costs to the States, while a March 2011 analysis from the Congressional Budget Office (CBO) estimated a cost of $60 billion through 2021.

The reason for this discrepancy is that "you're sampling in an incomplete universe over different periods of time," according to Thomas P. Miller, JD, a resident fellow at the American Enterprise Institute and former senior health economist for the Joint Economic Committee, both in Washington, DC.

There are basically three sources for what the expansion will cost states, he says, referring to the CBO's March 2010 estimate, which estimated new state spending on Medicaid at $20 billion between 2017 and 2019, the CBO's March 2011 estimate, and the Joint Congressional Committee's report.

"CBO's first estimate was on the low side. It probably wasn't their singular focus, considering everything else they were doing at the time," says Mr. Miller. "They did an update to a period of 2021, which brought it up to a little over $60 billion."

Unlike the CBO report, the Joint Congressional Committee's report didn't independently create an estimate, notes Mr. Miller. "It's almost the difference between a top-down and a bottom-up approach," he says. "CBO's estimates are partly literature-based, and part of it is black box models. My general view is that they will tend to have more of a national overview of what this is going to mean."

Timeframe is key

CBO's "top down" approach, says Mr. Miller, is to "make some assumptions and go formulate a number, which is what Congress wants. They want a number that looks like it is more precise than it is."

In contrast, says Mr. Miller, the Joint Congressional Committee report took more of a "bottom up" approach. "They took whatever good information there was, but it wasn't all from the same methodology. Some reports are more elegant and defined than others," he says.

Another key difference is that the Congressional report is based on a longer timeframe, says Mr. Miller. "With all of these spending projections, the further you go in the out years, the higher the number you will get," he adds. "By adding two years, you will get a lot of money. That doesn't account for the entire gap between the $60 billion and the $118 billion, but it can account for some of it."

In addition, says Mr. Miller, the Congressional report filled in additional out years, to 2023, for which it did not already have full estimates from various other sources, by taking the last year for which there was an estimate and increasing it each year by the assumed average annual rate of increase in Medicaid spending in general.

The Joint Congressional report was based in part on estimates from state agencies, adds Mr. Miller, which were mostly done some time after the ACA was passed. "By that time, some of the cement was beginning to harden," he says. "People may have been beginning to express a little bit of over projection of their worst fears in a tough climate."

Estimates coming from states, says Mr. Miller, tend to be "a little more nervous or pessimistic about how this is all going to work in practice. They're going to load in some cost elements for hidden administrative costs that sometimes get airbrushed away," he says.

Most of the early estimates from the CBO focused on the costs to states for new eligibles, who wouldn't be fully subsidized in the out years, notes Mr. Miller. "But you have some other costs coming in, if you believe there might be a little game playing between the feds and the state," he says. "If the feds are running the exchange, they may call people previously eligible instead of newly eligible," he says.

A more negative forecast of those cost effects by state officials could account for some of the increased costs in the Joint Congressional Committee report, says Mr. Miller, adding that all of the existing estimates are inexact.

"No one has a great read on this," he says. "Folks at the state level, who can't afford what they currently have and are still belly up for a while, are going to think it will work out a lot more negatively for them, with them getting caught short."

In contrast, says Mr. Miller, "folks from Washington are saying, 'What a good deal. We are paying almost all of your bills. What's the problem?'"

The number of individuals eligible for Medicaid coverage, as opposed to coverage through the exchanges, is another uncertainty, adds Mr. Miller. "It's hard to know what will ultimately be tagged as Medicaid, as opposed to lower income exchange coverage, with people moving back and forth," he says. "It's a very volatile and unpredictable environment. When you haven't actually done it in the real world, you can't make those things as finely calculated as presumed on paper."

Concerns are valid

Spending projections are guesswork to a large degree, says Mr. Miller, but they do pinpoint some valid concerns.

"There are some warning flags from people who are closer to the ground," he says. "A lot of people in the states do think this is a problem, that it's not all been taken care of. That should be listened to, regardless of whether the calculations are exactly precise."

Here are other key variables that are still uncertain regarding the cost of the Medicaid expansion to states, says Stan Rosenstein, MPA, principal advisor at Health Management Associates in Sacramento, CA and former California Medicaid director:

Take-up rates.

California's analysis of the cost of the Medicaid expansion included 50%, 75%, and 100% take-up rates, notes Mr. Rosenstein. "You can debate that, and states will make their best estimates of what those will be, but nobody knows until you get there," he says. "There is no science to those kind of projections."

Requirements for maintaining eligibility.

"One thing the ACA didn't really address is the requirements for maintaining eligibility — both how easy it is to get enrolled, and also maintenance and status reporting," says Mr. Rosenstein.

States have a fair amount of flexibility on status reporting under the ACA, adds Mr. Rosenstein, and will have to decide what level of reporting they will require. "There are a whole range of options. That is another big variable that states will have to address," he says. "By requiring more status reporting, you can keep your caseloads down."

Enrollment levels.

All of the spending projections are based on enrollment levels as of 2011, but there could be dramatic changes in levels by 2014, says Mr. Rosenstein. "Medicaid has grown dramatically in the past two years because of the recession," he says. "Things could turn around and enrollment could drop because unemployment is going down, or it could be the other way around."

Contact Mr. Miller at (202) 862-5886 or tmiller@aei.org and Mr. Rosenstein at (916) 792-3740 or srosenstein@healthmanagement.com.