How The SCOTUS Medicaid Ruling Could Save Money

The Supreme Court ruling on the health care law could have an unexpected effect — saving the federal government money, say some budget experts.    

How The SCOTUS Medicaid Ruling Could Save Money

The exact amount of savings is still unknown, because it depends on how many states decide not to expand their Medicaid programs, now that the court has said that they have a choice in the matter. Washington would save because it will provide the lion’s share of funding for the jointly-run program for the poor and disabled.

Already, Republican governors in about a dozen states are threatening not to move forward with the expansion, including Texas, Florida, Mississippi, South Carolina, Louisiana and Wisconsin. Some, like Texas and Florida, have given a firm “no” to the expansion, while others – like Wisconsin – have hinted there’s a bit of wiggle room.

The details won’t become clear until the nonpartisan Congressional Budget Office weighs in the week of July 23 with estimates of how the court’s ruling will affect federal spending. In the meantime, the Republican-controlled House has scheduled a vote to repeal the entire law on Wednesday. The bill is expected to pass the House easily, but it won’t go any further since Democrats control the Senate and White House. 

Deficit reduction – and the role of the health law in that – is expected to be a political issue for the foreseeable future. Congress early next year must negotiate a budget deficit reduction deal or face automatic federal spending cuts of as much as $1.2 trillion on everything from Medicare to defense.  

Here’s how the court’s decision may affect federal spending:

If a state declines the expansion, only about one-fifth of the people who would have qualified for Medicaid will be eligible instead for federal premium and cost-sharing subsidies, according to Genevieve Kenney, senior fellow at the Urban Institute. (The law makes people up to 138 percent of the federal poverty line eligible for Medicaid; those between 100 percent and 138 percent could alternatively receive subsidies.) The subsidies cost more, but the federal government would provide them to far fewer people, she said.

In 2016, for example, the per-person cost of providing Medicaid would be about $5,400, according to CBO data. The average cost of providing subsidies instead would be more, the data show. It’s about $5,210 for an average adult, but this low-income population is not average. These enrollees will get more in the way of subsidies, because they will qualify for the maximum amount of subsidies, raising the pricetag higher than what it would be if they got Medicaid. 

In Florida, for example, 1.3 million people would be newly eligible for Medicaid if it expands its program, according to the institute. But, if the state declines, as Republican Gov. Rick Scott wants to do, the federal government would instead pay out subsidies for private insurance to about 300,000 of those people.

To be sure, the cost data is rough, and the eventual outcome would vary from state to state. Some conservatives project that the federal government’s costs would rise. The Heritage Foundation and the American Action Forum are among groups that have come up with estimates, one of which projects that the federal government could spend up to $100 billion more per year.

Heritage’s Drew Gonshorowski calculates that the federal government will spend between $34 and $90 billion more over 10 years. While he believes that the subsidies will cost more than Medicaid, he argues that the same number of people will get subsidies as would have received Medicaid.

He predicts that CBO’s forthcoming report will bear that out. CBO scoring estimates in the past “find that less enrollment in Medicaid combined with more enrollment in exchanges results in more spending,” Gonshorowski wrote in a blog post July 6.

Politically, if even one state declines the Medicaid expansion, it would not be welcome news to President Barack Obama and to Democrats, who are counting on Medicaid to expand health insurance coverage to an estimated 17 million people.

People between 100 percent and 138 percent of the federal poverty level (currently $11,170 to $15,415 in annual income for an individual) would instead get the federal subsidies. But most adults below the poverty level would likely remain uninsured. That could amount to 11 million adults, the Urban Institute says.

As congressional and presidential campaigns kick into high gear, both parties are using the court decision to make their case against the other. Democrats point out that Republicans proposing to leave the federal Medicaid money on the table are stranding the poorest of the poor without insurance. Some Republican governors counter that budget-squeezed states can’t afford their share of the cost, and they are vocal in their opposition to complying with the health law in any way.

As part of the law, the federal government will cover the full cost of newly eligible people for the first few years, then scale back until it picks up 90 percent of the cost after 2019. That’s significantly more than the federal government pays for existing Medicaid enrollees.

Florida’s governor said in a news release July 1 that Florida will “opt out of spending approximately $1.9 billion more taxpayer dollars required to implement a massive entitlement expansion of the Medicaid program. … The burden increasingly shifts to Florida taxpayers in future years. Medicaid, which has been growing for years at three-and-a-half times as fast as Florida’s general revenue, will soon grow even faster under ObamaCare, and education funding will be adversely impaired if we do not control the growth in Medicaid spending.”

The partisan rhetoric, though, won’t greatly affect the elections, either at the national or state level, according to Robert Blendon, professor of health policy and political analysis at Harvard. Some of the most vocal opponents of the health law either aren’t up for reelection or are trying to please voters who dislike the health law, he said.

“Core voters for [Texas Republican Gov. Rick Perry] want him to oppose this bill [and] the president is not going to carry Texas. The people who vote against him don’t want the law to go forward,” Blendon said.