Report: Michigan could save nearly $1 billion over 10 years by expanding Medicaid eligibility

October 14, 2012 | Publication

A report released today by the Center for Healthcare Research & Transformation (CHRT) in partnership with two economists at the University of Michigan shows that the State of Michigan could save nearly $1 billion over 10 years—while extending comprehensive health insurance to more than 600,000 Michigan citizens—if the state expands Medicaid eligibility beginning in 2014 as provided for under the Affordable Care Act.

The U.S. Supreme Court’s June 2012 decision largely upheld the constitutionality of the Patient Protection and Affordable Care Act (ACA), but a provision that would financially penalize states that opted out of the law’s Medicaid expansion was not upheld, leaving the decision to individual states whether or not to expand Medicaid eligibility to individuals at or below 138 percent of poverty. In 2012, 138 percent of federal poverty level for a family of four is $31,809.

The State of Michigan has not yet indicated whether it will expand Medicaid eligibility. The CHRT/University of Michigan analysis of three different scenarios, varying mostly according to assumptions about enrollment behavior, shows that under all three scenarios, the expansion would reduce the number of uninsured while reducing overall state spending.

In the most likely scenario, by 2020, the state could expect Medicaid enrollment to increase by 619,000 people—most of whom are currently uninsured. The federal government will bear nearly all of the cost of the expansion, and the new federal funds will offset state spending on existing health programs. Because of this, the state would save an estimated $983 million over 10 years. In 2020, the annual cost per individual covered would be only $63, growing to just more than $80 per enrollee per year by 2023. Under all three scenarios analyzed, the state experienced a net savings over the 10‐year period. In the low take‐up scenario, the state would experience savings in all years studied for a total of approximately $1.4 billion over 10 years. In the high take‐up scenario, the state would have net 10‐year savings of approximately $840 million.

Other significant findings include:

  • With the expansion, the total number of uninsured in Michigan is projected to decrease from approximately 1.1 million people in 2010 to about 290,000 uninsured in 2020.
  • The expansion would bring a projected 619,000 people, most of whom are uninsured today, into the Medicaid program with no net cost to the state until 2020.
  • The state would save money every year from 2014 through 2019.
  • Three quarters of those who would be eligible for the Medicaid expansion are below 100 percent of poverty and would not be eligible for a subsidy to buy private insurance under the Affordable Care Act if the state decides not to expand Medicaid.

The state’s decision will have a considerable impact on hospitals in Michigan since the ACA includes provisions that reduce extra compensation to hospitals that treat high rates of the uninsured and publicly insured patients. In 2010, Michigan hospitals provided $2.4 billion in uncompensated care. An expansion of the state’s Medicaid program would also benefit employers that provide health insurance coverage today and that experience higher premiums as a result of uncompensated care costs incurred by hospitals.

Whether or not the state opts to expand Medicaid, Michigan is likely to see an increase in enrollment among those already eligible, resulting from publicity about the ACA, the requirement that all Americans purchase health insurance or else pay a penalty, and Medicaid eligibility simplification.

“The facts of this analysis show that expanding Medicaid in Michigan will benefit the state and its citizens,” says Marianne Udow‐Phillips, CHRT’s director. “We know from research that people who are uninsured have worse health outcomes than the insured, and that the uninsured often receive their care—to extent that they do get care—in the highest cost settings.”

“Given our analysis, expanding Medicaid is important for the continued economic improvement of our state. This expansion will greatly benefit our working poor, many of whom do not have health insurance today,” says Thomas Buchmueller, Ph.D., a study coauthor, Waldo O. Hildebrand Professor of Risk Management and Insurance and Professor of Business Economics and Public Policy at the University of Michigan Ross School of Business, and Professor of Health Management and Policy at the University of Michigan School of Public Health. Buchmueller is also a former senior economist to the President’s Council of Economic Advisers in Washington, D.C.

“According to our analysis, the economic benefits of a Medicaid expansion in Michigan are clear. But, there are also an untold number of human impacts that we can’t begin to quantify that will have a meaningful impact on our state’s most vulnerable population,” says Helen Levy, Ph.D., another study coauthor and a research associate professor at the Institute for Social Research, University of Michigan School of Public Health, and the Ford School of Public Policy. Levy is also a former senior economist to the President’s Council of Economic Advisers in Washington, D.C.