Cost overruns a certainty with Medicaid expansion

The Office of Fiscal and Program Review released the fiscal note for the Medicaid expansion referendum Maine voters will consider this November. The one-page summary of the ballot initiative’s impact projects an annual appropriation from Maine’s General Fund of roughly $54.5 million and estimates that expansion will save approximately $27 million annually within existing programs.

Expanding Medicaid in Maine will provide government subsidized health insurance to able-bodied, childless adults between the ages of 21 and 64 earning up to 138 percent of the federal poverty level. The measure also covers noncitizens 21 and under.

Proponents of Medicaid expansion claim that only 70,000 new Mainers would enroll in the program. However, according to the Census Bureau, there are 144,000 Mainers who fit the eligibility criteria to enroll in Medicaid if the state chooses to expand.

Of the 144,000 eligible Mainers, some are already enrolled in Medicaid and others are on private insurance and would not switch to the public plan even if eligibility widens. However, there are another 80,000 Mainers who earn between 138 and 200 percent FPL who would have new incentive to marginally reduce their earnings to obtain coverage.

Based on the data released in the fiscal note, the Office of Fiscal and Program Review is anticipating expansion enrollment to reach 90,000, well above the estimates offered by expansion proponents.

Additionally, there’s still reason to believe that this estimate is low. In 2002, when Maine expanded Medicaid to childless, able-bodied adults earning up to 125 percent FPL, proponents promised that only 11,000 new Mainers would enroll. However, within 14 months, 17,000 new Mainers enrolled and the program was eventually capped at 25,000.

There are three primary factors that drive cost overruns when it comes to Medicaid expansion; higher-than-anticipated enrollment, a phenomenon called “crowd out” and the Woodwork Effect.

Crowd out is characterized by the privately insured switching to public health options once the eligibility criteria for government subsidized care expands. Instead of these people continuing to privately finance their own health care, they will switch to the Medicaid program, putting taxpayers on the hook for their health coverage. The Woodwork Effect is a term used to describe new program enrollees who “come out of the woodwork” to receive care. These people were previously eligible for traditional Medicaid but never enrolled.

Because the federal government subsidizes traditional Medicaid at a lower rate than expansion, those who enter the program through the Woodwork Effect will cause great strain on the state budget, as Maine will fund roughly 35 percent of their health care expenses rather than 10 percent. Today, there are approximately 3,460 previously-eligible parents and 5,766 previously-eligible children that would enroll in traditional Medicaid if the program were expanded, at an additional cost of about $50 million.

Together, these three factors cause massive budget overruns that balloon state budgets and put other services on the chopping block. The table below shows a number of cost overruns experienced in states that have already expanded Medicaid eligibility under the Affordable Care Act, or ObamaCare.

According to spending models created by the Maine Department of Health and Human Services, expanding Medicaid would cost Maine roughly $400 million over the next five years and at least $100 million annually from 2022 onward.

These figures do not consider the potential savings that come from expansion, which include savings in services provided to the mentally ill, disabled, pregnant women and other groups that would see their health costs covered by the federal government instead of the state of Maine after expansion.

However, the $27 million in savings is not guaranteed, and the state of Maine will still have to increase taxes and front $54.5 million annually to achieve the potential savings.

Despite the Office of Fiscal and Program Review’s cost estimates being lower than the numbers provided by the Maine DHHS, one thing is certain; expansion enrollment will be way more than the mere 70,000 proponents suggest, invalidating all of their estimates concerning the cost of expansion.