Closer Look: New health care law offers mix of costs, savings for Illinois’ Medicaid program

The Republic reports:

“CHICAGO — As the dust settles from the U.S. Supreme Court’s momentous decision on health care, top state leaders have faced off with conflicting figures about the cost to Illinois of expanded Medicaid coverage. President Barack Obama’s health care overhaul expands Medicaid to more Americans, but the court’s ruling, in effect, makes the expansion optional for states.

The day of the court’s decision, Illinois Comptroller Judy Baar Topinka, a Republican, warned that the state would pay “an additional $2.4 billion” over six years. She urged lawmakers “to start saving now for those added costs.”

U.S. Sen. Dick Durbin, a Democrat, countered that the federal government would pay “the entire cost” of the expansion. “I want to send to Miss Topinka, who is a friend of mine, a copy of the bill,” Durbin told one TV news station, implying that Topinka would back down once she had read the law.

Who’s right? As it turns out, they’ve both got facts on their side. But both fail to mention critical information.

Voters are likely to hear more sound bites from politicians about the cost of expanding Medicaid for states from now until November’s presidential election. Governors in at least five states have said they’ll reject the Medicaid expansion now that it’s optional, citing costs.

Illinois Gov. Pat Quinn has embraced the president’s health care law, including the Medicaid expansion. Quinn’s office says cost estimates have been incorrect and “unduly high.”

Here’s the reality: Most of the cost of expanding Medicaid program will be paid by the federal government, but states will pay some additional costs primarily because of a quirk called “the woodwork effect.”

State and federal governments share the cost of Medicaid. In Illinois, the split is about 50-50. Health policy people talk about the “federal Medicaid match” because the federal dollars roughly match the state dollars. The formula varies from state to state.

Under the new health law, as Durbin suggests, the federal government will pay the entire cost — 100 percent — for people newly eligible for Medicaid for the first three years, starting in 2014. The federal share falls to 90 percent by 2020.

But as Topinka suggests, states will be on the hook for other costs. States continue to pay about half the cost for people who are already eligible for Medicaid but who’ve never enrolled before. Those people are predicted to come out of the woodwork to sign up because of new outreach campaigns and more attention to the benefits of health insurance coverage. Thus, the “woodwork effect.”

Topinka’s estimate of $2.4 billion for Illinois comes from a highly respected and nonpartisan source: a 2010 report from the Kaiser Commission on Medicaid and the Uninsured.

That report estimates Illinois Medicaid would add 600,000 to 900,000 enrollees by 2019 because of the health care law and spend an additional $1.2 billion to $2.4 billion. Topinka chose the higher estimate. An author of the report, John Holahan of the Urban Institute, said he would choose the higher estimate himself.

Most of that new state spending — $1.6 billion — would go toward the “woodwork effect,” the states share of payments for those currently eligible for Medicaid who would be inspired to sign up because of Obama’s law, Holahan said.

Here’s what Topinka didn’t mention: The federal government would spend $22 billion to expand Medicaid in Illinois through 2019, increasing the number of insured Illinois adults at a minimal cost to the state, according to the Kaiser report. For every $1 the state spends, the federal government spends $9.

Some health policy experts call that a bargain for Illinois.

Illinois would gain in important ways, said Alan Weil, executive director of the nonpartisan National Academy for State Health Policy. Fewer medical costs would be shifted onto people with good health insurance by hospitals and other providers that end up providing free care to the uninsured. State-funded mental health services would reap savings, he said.

“If you leave out the positive economic effects that (covering the uninsured) would have on providers and business in general, then it is out of context if you only mention the increase in state spending,” said Holahan of the Urban Institute.

As for Durbins comments, a spokeswoman for the senator said he may have heard a TV producers paraphrase of Topinka’s comments rather than her actual remarks.

“The state of Illinois will incur some expense if people who are already eligible for Medicaid begin signing up — that would happen with or without the new health care law,” said Durbin spokeswoman Christina Mulka.

“However, as Sen. Durbin said, the cost of expanding Medicaid to include those who are newly eligible is fully paid for by the federal government for the first few years (and then 90 percent on and after 2020). I would also point out there is substantial cost savings for the state of Illinois in having Medicaid-eligible people covered by insurance rather than having them not seeking care or being treated in emergency rooms.””