It’s the Math: The Medicaid Expansion in Michigan

October 12, 2012

In many respects, the Affordable Care Act is a law about health care coverage. It is designed to expand coverage, mostly by using two tools: (1) the requirement for individuals to have/purchase health coverage or face tax penalties (known as the individual mandate), and (2) the expansion of Medicaid eligibility to all with incomes at or below 138 percent of poverty.

However, the Supreme Court’s June decision to remove penalties for states that choose not to expand Medicaid left in doubt the number of uninsured that would actually gain Medicaid coverage under the law. After the ruling, the independent analysts at the Urban Institute revised downward their projections of the number that would gain coverage under the law, under the assumption that some states would indeed choose not to expand Medicaid.

The decision for states is not as straightforward as it might seem: the law included carrots as well as sticks. The most important carrots are financial: the federal government will cover 100 percent of the cost of the newly eligible Medicaid enrollees until 2017, when the states would be expected to pick up some of the cost. Starting in 2020 and continuing on after that, the federal government would pay a flat 90 percent and states would be responsible for 10 percent, regardless of the economy or other circumstances in the state. This is a far more generous approach than the current Medicaid program where the match varies based on state economic circumstances. The highest match rate today is around 74 percent.

Knowing that Michigan would be one of the states considering its options under the law, two of our colleagues at the University of Michigan (economists Tom Buchmueller and Helen Levy) suggested we could work together to develop a projection of the likely impact of the Medicaid expansion on Michigan. We are releasing our analysis today.

We looked at three scenarios, which varied primarily on the percentage of those eligible under the expansion that would actually enroll. In all three scenarios (assuming low, medium, or high enrollment), there would be net savings to the state over 10 years, because many services the state pays for today—with state dollars—would be covered by federal dollars if the state expands Medicaid.

In our “low” enrollment projection, our analysis showed the state would save money in each year of the 10-year period. In the “medium” and “high” enrollment scenarios, our analysis showed the state would save money in every year through 2019, with a small net cost to the state beginning in 2020. In all three scenarios, hundreds of thousands of people who are currently uninsured would obtain Medicaid coverage.

So what’s the bottom line? In our most likely scenario (based on the medium enrollment assumption), 619,000 people would become newly enrolled in Medicaid in Michigan for a net 10-year savings to the state of $983 million. In 2020 when there would be a net cost to the state, the cost per individual covered would be only $63 on an annual basis, growing to just more than $80 by 2023.

If decisions are being made based on the facts, there should be little debate about whether or not to expand Medicaid in Michigan: expanding Medicaid under the terms included in the Affordable Care Act is a good deal and the right thing to do.

Why is it the right thing to do? Well, the research is compelling. A recent study from Oregon showed that low-income people with Medicaid coverage had better health than those in a matched population who were uninsured. Better health means that individuals are able to be productive and contributing members of society. Better health means that individuals are not going to the emergency room for care and incurring costs for which hospitals are not compensated—costs that get shifted to those who do have insurance.

And, most importantly, better health means that people can better take care of their families and have more fulfilling lives.

Of course, political decisions are rarely based on data or facts alone. But we can hope, and try. This decision is a true test of the proposition that the public dialog can be informed by information. Let’s hope—on behalf of the hundreds of thousands who are uninsured in our state today—that the facts are persuasive in this case.

Michigan should expand Medicaid. There is simply no question about it.