Medicaid Estimates Renews Cost Concerns Over Obamacare

The cost of expanding Medicaid to millions more low-income people is increasing faster than expected, the government says, raising questions about a vital part of President Barack Obama's health care law.

The law called for the federal government to pay the entire cost of the Medicaid expansion from 2014 through the end of this year.

Obama has proposed an extra incentive for states that have not yet expanded Medicaid: three years of full federal financing no matter when they start. But the new cost estimates could complicate things. In a recent report to Congress, the Centers for Medicare and Medicaid Services said the cost of expansion was $6,366 per person for 2015, about 49 percent higher than previously estimated.

Albright said that the overall cost of the Affordable Care Act's coverage expansion is still lower than estimated when the law passed in 2010. However, other factors besides per-person costs enter into that overall figure. They include the total number of people enrolled, which has been lower because many states have not expanded Medicaid.

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There are several reasons that may account for the differences between the estimates in this year’s report and those in previous reports. First, it is possible that States reported more expenditures in 2015 that were incurred in 2014, thereby making the per enrollee costs in 2015 appear higher than they would actually be. More significantly, both in magnitude and in the direction of the growth rate, the differences in the estimates occurred largely because the managed care capitation rates were set at higher levels than anticipated for the newly eligible adults. Most of the States that implemented the eligibility expansion are covering newly eligible adults in Medicaid managed care programs, and on average the capitation rates for the newly eligible adult enrollees were significantly greater in 2014 and 2015 than previously estimated (and shown in past Medicaid reports). In particular, two assumptions varied considerably. Many States included adjustments to reflect a higher level of acuity or morbidity among newly eligible adults compared to nonnewly eligible adults. In most States, these adjustments were positive (in other words, newly eligible adults had a higher level of acuity than non-newly eligible adults), and in some cases the adjustments were substantial.34

States also included other adjustments in the capitation rates for newly eligible adults. Many States projected increased costs due to pent-up demand, expecting that many enrollees would have been previously uninsured and would use additional services in the first several months of coverage. Some States also included adjustments for adverse selection with the anticipation that the persons who were most likely to enroll in the first year would be those with the greatest health care needs.

Data for newly eligible adults are still limited. While CMS has reported some enrollment and expenditure data for this group, data on claims and managed care encounters, along with data on the health status and demographics of these enrollees, are not available. Thus, there is still considerable uncertainty about the health care costs of newly eligible adults in 2014 and 2015, as well as for future years.

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Though some major U.S. health insurers are sustaining financial losses tied to their Affordable Care Act individual policies, another aspect of the health law has proved more profitable--Medicaid expansion.

Fourth-quarter earnings reports from the "big five" insurers show some promising results from their Medicare and Medicaid business lines, even as they struggled to make a profit on ACA-compliant individual policies. The earnings reports from a few other insurers, though, are even more indicative of the trend of rising Medicaid profits.

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