Policy

Could ObamaCare's Medicaid Expansion Be Even Larger Than Expected?

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They've got him thoroughly covered.

When Richard Foster, the government's chief actuary for Medicare and Medicaid, testified about the recent health care overhaul before the House last month, he confirmed two frequently made criticisms about the law: The Patient Protection and Affordable Care Act is not likely to bring down costs, and, despite numerous presidential promises, it won't let all individuals keep their current health plans.

But a footnote in the prepared document version of his testimony reveals another reason to worry about the law's long-term effects: The law's Medicaid expansion might be far larger—and presumably far more expensive—than previously estimated. From page 10 of his testimony:

In addition to the higher level of allowable income, the Affordable Care Act expands eligibility to people under age 65 who have no other qualifying factors that would have made them eligible for Medicaid under prior law, such as being under age 18, disabled, pregnant, or parents of eligible children.   The estimated increase in Medicaid enrollment is based on an assumption that Social Security benefits would continue to be included in the definition of income for determining Medicaid eligibility.  If a strict application of the modified adjusted gross income definition is instead applied, as may be intended by the Act, then an additional 5 million or more Social Security early retirees would be potentially eligible for Medicaid coverage. [bold added]

Numerous states are already in deep fiscal trouble thanks to their bulging Medicaid programs. Arizona has asked for a federal waiver giving it permission to drop 280,000 Medicaid recipients from its rolls without fear of losing federal money. The PPACA calls for the federal government to pick up much of the cost of the Medicaid expansion, but states will still be responsible for coming up with tens of billions in extra funding over the next decade (one estimate indicates that Texas alone will face $27 billion in new Medicaid costs by 2023 thanks to the PPACA's expansion of the program).

The diagnosis isn't good.

If the calculation were made as Foster's note suggests it might be, it would also mean that the cost to the federal government would rise dramatically. In his testimony, Foster says the Medicaid expansion is officially projected to cover 20 million new individuals and require about $455 billion in additional spending over the next decade, the bulk of which would be paid for by the federal government. But if the calculation goes the way Foster's footnote suggests, new enrollment could be 25 percent higher. Adding 25 percent to the cost results in an additional $113 billion in spending over the first decade—wiping out the bulk of the law's officially-assumed deficit reduction.

Obviously this is a very basic, back-of-the-envelope calculation, so that figure might end up being off. Indeed, because the population would be made up of early retirees, who are somewhat more expensive to cover, that simplified estimate is likely to be low. As Foster notes in the body of the report, "adults and children have much lower average health care costs than aged and disabled enrollees."

The bigger picture, of course, is that we still don't really know how this will play out. Currently, for example, there are millions of individuals who are eligible for Medicaid or S-CHIP but not enrolled. So it's at least possible that total enrollment will be lower than expect. (That said, most experts I've contacted expect that the new law will actually bring many of the currently unenrolled out of the woodwork). But Foster's cautionary footnote should serve as yet another reminder that there are numerous reasons to believe that the PPACA might not work as planned—and that it will cost taxpayers quite a bit more as a result.

(Hat tip goes to Chris Jacobs.)