The Department of Human Services recently released a new report explaining that Medicaid expansion enrollee costs are far higher than expected.
In other predictable news today, the sky is blue.
The Department of Health and Human Services’ (HHS) annual report on Medicaid’s finances contains a stunning update: the average cost of the Affordable Care Act’s Medicaid expansion enrollees was nearly 50% higher in fiscal year (FY) 2015 than HHS had projected just one year prior. Specifically, HHS found that the ACA’s Medicaid expansion enrollees cost an average of $6,366 in FY 2015—49% higher than the $4,281 amount that the agency projected in last year’s report.
The government’s chief financial experts appear not to have anticipated how states would respond to the federal government’s 100% financing of the cost of people made eligible for Medicaid by the ACA. It appears that the enhanced federal funding for the ACA expansion population has led states to set outrageously high capitation rates—the amount government pays insurers—for the ACA Medicaid expansion population. The rates are much higher than the amounts for previously eligible Medicaid adult enrollees and suggest that states are inappropriately funneling federal taxpayer money to insurers, hospitals, and other health care interests through the ACA Medicaid expansion.
The report follows news announced earlier in July that Arkansas has the most expensive individual insurance market in the nation — despite the claims of many pro-Obamacare lobbyists and legislators to the effect that expanding Medicaid would make Arkansas’s overall insurance market healthier.
According to Forbes, DHS made similar rosy predictions about the healthiness of Medicaid expansion enrollees nationwide.
More from Forbes:
Most experts, particularly proponents of the ACA, projected that newly eligible adult enrollees would be less expensive than previously eligible adult enrollees. For example, HHS’ financial and actuarial experts projected that adult Medicaid enrollees made eligible by the ACA would be 30% less costly than previously eligible adults enrolled in Medicaid. Apparently, their models did not account for states responding to the incentive of the elevated reimbursement rate to spend freely.
In last year’s Medicaid report, HHS estimated that newly eligible adults had an average cost 19% higher ($5,517) in FY 2014 than the average cost for previously eligible adults ($4,650). In projecting future per enrollee costs, HHS’ experts assumed “that the effects of pent-up demand and adverse selection” would substantially diminish after 2014. HHS projected that the per enrollee cost of the newly eligible adults would decline by 22% in FY 2015 and would be about 11% less than those for other previously eligible adults.
It turns out that those projections were way off. Instead of a decline in per enrollee costs from FY 2014 to FY 2015, the newly eligible adult per enrollee cost increased significantly, reaching an estimated $6,366. HHS now projects that the newly eligible adult Medicaid enrollees will cost about 23% more than the previously eligible Medicaid enrollees in FY 2015. It is worth noting that pregnant women are included in the previously eligible Medicaid enrollment category; without them, the differences would be even more pronounced.
These “effects of pent-up demand and adverse selection” (as “HHS’s experts” call them) are echoed in the explanation Allen Kerr, Arkansas Insurance Department Commissioner, attempted to give to legislators earlier in July for increased cost projections for Medicaid expansion in Arkansas.
We have a larger population of deferred maintenance. People haven’t been going to the doctor and suddenly they have coverage and they want to feel better. The only way this spread of risk works is if you have part of that population that’s not utilizing the coverage. What we didn’t anticipate is that we have a large amount of that population utilizing the benefits. At some point, that may subside after all that deferred maintenance is taken care of.
Translation: once government starts heavily subsidizing a service, it’s difficult to predict just how many people will sign up for said service. As bureaucrats and politicians tend to forget, future projections based on questionable assumptions will not always square with reality.
Speaking of reality, Kerr is expected to announce in August how much insurance premium increases will be for health insurance companies servicing Medicaid expansion enrollees.
These companies have requested between 15 and 24 percent in rate hikes. Those increased rates will be paid for by taxpayers. Kerr has until August 23 to set rate hikes for 2017.