Health care reform won’t change state

May 17, 2010
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The net cost of health care reform to the state budget could be around $100 million by 2020, according to a report from the state Senate Fiscal Agency that provides a preliminary peek at the impact of the federal legislation.

“By 2020, there will probably be a net cost increase. We’re talking on a scale, after you net everything out, maybe $100 million or something along those lines,” said Steve Angelotti, a fiscal analyst who worked on the report, issued in April, with colleague David Fosdick. “$100 million, 10 years from now, is just not a huge amount of money.”

Angelotti said he and Fosdick took advantage of the Legislature’s spring recess to take a stab at estimating the fiscal impact of the sweeping federal health care reform laws on state coffers. “There is so much in there, it’s really just getting the tip of the iceberg, I think,” he said.

Much remains to be determined in the details of how reforms will be carried out, and in the political winds, he noted, that could affect how health care reform is reflected in the state budget.

“It’s not going to be a panacea for our problems. It’s not going to be a disaster, either,” Angelotti said. “It’s going to be in between.”

It pegs the total annual cost of Medicaid expansion in Michigan at $2 billion, and the net cost, $200 million. Health care reform legislation gradually increases state contributions from none now to 10 percent of the total over the next 10 years. The state would eventually pay for 10 percent of the Medicaid expansion to an estimated 375,000 additional Michiganders — mostly non-disabled, childless adults. Expanded Medicaid begins in 2014 as a federally funded initiative, under the new law.

“Single adults and couples without children represent the largest uncovered low-income population, and the Federal legislation would provide coverage for them,” the report notes.

Other provisions would offset additional spending by saving money, according to the report. For example, Medicaid would start to cover mental health services, saving an estimated $144 million in 2014.

According to the report, $287 million of the state General Fund/General Purpose budget in the current fiscal year will be allocated for non-Medicaid services provided by Community Mental Health agencies. With expansion of Medicaid, those costs would be approximately cut in half, the report states.

The combination of Medicaid expansion and Medicaid coverage for mental health services could result in a $100 million general fund savings, the authors indicated.

The Medicaid expansion would negate the need for county-based health plans for childless adults with incomes at or below 35 percent of the federal poverty level. Those Adult Benefits Waiver programs are funded by state and federal dollars. The fate of local dollars that go into these programs to capture the federal Medicaid match is uncertain, the report stated.

The law does allow the state to immediately expand Medicaid, but that would cost a minimum of $300 million and as much as $500 million out of the state general fund.

The reform bill requires states to boost Medicaid payments to primary care physicians to the same levels paid under Medicare for two years, with the federal government picking up the tab. In Michigan, Medicaid pays primary care physicians at an average of 54 percent of Medicare rates, compared to a nationwide average of 66 percent. The pay boost would cost $120 million in Michigan in 2014, according to the report.

By fiscal year 2015-16, the federal government would pay another 23 percent of the cost of the MI-Child program under the State Children’s Health Insurance program, up from providing about 75 percent of the cost now. That would save the state $12 million, the report states. Through MI-Child, Blue Cross Blue Shield of Michigan covers care for children whose families have incomes from 150 percent to 200 percent of the federal poverty level and are not eligible for Medicaid.

Reform legislation also aims to cut back on nursing home use by encouraging home-based long-term care programs. If the state spends at least 25 percent of its long-term Medicaid dollars on programs that keep the disabled in their own homes instead of nursing homes, the law will allow a 5 percent boost in federal matching dollars.

The legislation requires that states continue to fund optional Medicaid programs prior to 2014, when many of the provisions kick in. That means that three proposed budget-balancing moves for Michigan’s 2011-12 budget would have to be dropped: eliminating coverage for certain caretaker relatives and 19- and 20-year-olds and freezing enrollment in the Adult Benefits Waiver programs. It would cost the state nearly $24 million to retain those proposed cuts.

The report also indicates that the impact on government entities as employers comes mainly from the mandate to provide insurance coverage for young adults up to age 26. The study concludes that about 10,000 Michigan residents would fall into that category, raising costs for governmental units across the board by less than $20 million.

Angelotti said the patchwork of changes should have a mild effect on the state budget compared to annual changes.

“Relative to all the changes we have in the budget, expansions and so forth, year to year and all that, the impact of this is going to be minor compared to that,” Angelotti said. “At first, there’s going to be some savings. Then as the state’s share of the Medicaid expansion grows, there may be a net cost. But again, it’s not going to be something that will bust our budget.”

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