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Opinion: The Health Reform Windfall

The governor's right, New Jersey stands to profit nicely from Medicaid expansion, but money alone can't measure the real gains.

In his Budget Address on February 26, Gov. Chris Christie said that by expanding Medicaid, “taxpayers will save approximately $227 million in Fiscal Year 2014 alone.”

How can that be? Where do the governor’s savings claims come from? Are they real? Will the savings last beyond 2014?

While I am not privy to the calculations used by the governor’s staff, I can say with confidence that the savings are, indeed, real.

Projected 2014 Medicaid enrollment numbers are the first place to look. The governor noted that Medicaid enrollment will grow by 104,000. That figure represents the number of previously ineligible individuals that are expected to enroll under the Medicaid expansion. (More will be eligible, but history tells us that not all will enroll.)

Without the expansion, this group -- very-low-income adults under age 65 without dependent children and not certified as disabled -- would have no coverage option. Under the Affordable Care Act (ACA), the federal government will pay 100 percent of Medicaid expenses for this group through 2016, after which the federal share drops down to 90 percent by 2020.

An additional roughly 130,000 individuals who are eligible for Medicaid or NJ FamilyCare today but not enrolled are also expected to sign up when the ACA open enrollment period begins. Some of these individuals will learn for the first time that they are eligible for public coverage when investigating their options under the ACA. The state will get the standard federal matching funds, usually 50 percent, for this group of new enrollees.

There is a third group that is already covered but will account for significant savings to the state in 2014.

Under a time-limited federal waiver, about 60,000 parents with incomes below 133 percent of the federal poverty line are presently enrolled in NJ FamilyCare. New Jersey gets the standard federal match to cover these parents, but in 2014 this group will be considered part of the expansion population and thus funded entirely by the federal government. Real savings.

There are other sources of state savings as well. A recent study quantified some of those sources of state budget gains for Michigan.

Here the fine print matters. For example, the expanded Medicaid program will cover some costs for the state prison population. Recall that the expansion targets very-low-income adults without children, a group well represented among the incarcerated. While Medicaid will not fund prison health services, it will cover community hospital cost for prisoners. The Michigan report estimated state savings of $234 million from this provision over the first five years of the Medicaid expansion. (New Jersey has fewer prison inmates than Michigan, so the savings will be smaller here).

While I do not know whether the savings estimate in Christie’s calculations includes “budget offsets” like the prisoner health savings, this windfall is nonetheless real and long-term.

There are other sources of future savings that are not in the governor’s numbers yet. In his 2014 budget, Christie has not proposed to cut hospital subsidies, which mainly fund charity care. These subsidies amount to nearly $1 billion per year funded with a blend of state and federal revenue. As Medicaid enrollment ramps up starting in 2014, the number of uninsured patients in emergency departments and inpatient units will decline, as will the need for subsidies. It is premature to cut charity support now, not least because the Medicaid expansion does not start until halfway into the coming state fiscal year. But over time, the need for such subsidies will decline (as will available federal contributions for them).

The Medicaid math is compelling. Even in states like Florida, where voters are more hostile to Obamacare than in the Garden State, governors are embracing Medicaid expansion. In fact, the love-hate relationship of governors and Medicaid goes back to the inception of the program.

Back in 1965 when Medicaid became the law of the land, the most recalcitrant states resisted but eventually joined Medicaid. The last state to sign up was Arizona in 1982, making it all the more notable that even Arizona’s present chief executive, Jan Brewer, has embraced the Obamacare Medicaid expansion. The math is irresistible.

Most of us pay both state and federal taxes, so perhaps we are making too big a deal about what amounts to a transfer of revenue from one level of government to another. Yet Medicaid state budget impacts are by no means the whole story. The biggest health reform windfall will accrue to the hundreds of thousands of residents who gain health coverage. These individuals and families will be far less exposed to financial ruin from catastrophic health events and have greatly improved access to healthcare services, including no-cost preventive care.

Many are already feeling benefits from the early implemented parts of the ACA, including dependent care coverage for young adults and “preexisting condition health plans” for sick uninsured individuals.

The preexisting condition plan in New Jersey, called NJ Protect, is especially noteworthy, since it has reached an important milestone. Last week the federal government suspended new applications for NJ Protect because the program is projected to exhaust its $141 million federal allocation by year’s end. In 2014, NJ Protect will end and its members will be eligible to buy regular private coverage without preexisting condition restrictions or surcharges and with federal premium subsidies if they are income eligible.

NJ Protect filled a huge gap for a very needy group of state residents. Only those who had one or more preexisting medical problems and who had been uninsured for at least six months were eligible for the program. In total, NJ Protect has served about 2,500 people since its inception in 2010 and at present covers just over 1,400 individuals. Those enrolling pay standard nongroup market premiums, about $500 per month for a 55-year old. The fact that these very-high-need people were without coverage for so long before NJ Protect became available suggests that premiums at that level were financially out of reach. The federal subsidy covers the costs of care above what premiums fund. Here as well the math is compelling. For every dollar of premium taken in, these plans have paid out over five to healthcare providers. That’s right, a medical loss ratio of over 500 percent, reflecting the extreme medical needs of the NJ Protect population.

Moving toward accessible, affordable health care for everyone is challenging, to say the least. The health reform law is far from perfect and no doubt the road to implementation in 2014 will have bumps. But the benefits of reform run deep for New Jersey state taxpayers, healthcare providers, and, most of all, thousands of state residents who will enter the mainstream of American healthcare. Those gains are real and will be long lasting.

Joel C. Cantor is the director of the Center for State Health Policy and professor of public policy at Rutgers University. He has authored numerous studies of health insurance regulatory policy, healthcare delivery system performance, and access to care for low-income and minority populations. He serves frequently as an advisor on health policy matters to New Jersey state government. The views expressed in this essay are solely those of the author and are not endorsed by funders of the Center for State Health Policy.

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