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KPMG Analysis: Lack of Medicaid Expansion Could Leave 5.3M Without Coverage Under Affordable Care Act

WASHINGTON, Feb. 28, 2013 (GLOBE NEWSWIRE) -- As many as 5.3 million Americans who live in the 16 states that have either decided not to expand or are leaning towards not expanding their Medicaid programs may not qualify for coverage through the Affordable Care Act (ACA), according to a new analysis from KPMG LLP, the audit, tax and advisory firm. This figure also includes the seven states that are undecided about expansion.

The KPMG analysis, which uses publicly-available data, points out that the ACA was intended to create an interwoven system of coverage that would include Medicaid and private coverage – both subsidized and unsubsidized. Planners intended for expanded Medicaid eligibility and the subsidies (in the form of advance premium tax credits or APTCs) would work in tandem, along with other changes, to provide coverage to millions of previously-uninsured individuals.

But because Medicaid expansion is now optional (following last summer's Supreme Court decision), there is a gap in the ACA: in states that choose not to expand, there are some 5.3 million individuals who fall above their state's Medicaid eligibility level but below 100 percent of the federal poverty level and thus aren't eligible for the APTCs to help offset the cost of purchasing coverage through a health benefit exchange. The 5.3 million represents about 17 percent of the 32 million Americans originally projected to gain coverage through the ACA. (By comparison, the KPMG analysis estimates 10 million are projected to qualify for Medicaid coverage in the 27 states and District of Columbia that intend to expand Medicaid to 133 percent of the federal poverty level, or are leaning toward expanding.)

Paul Hencoski, a KPMG principal and the national lead partner for Health and Human Services, said, "State officials face a difficult decision on whether to expand their Medicaid programs. But our analysis clearly indicates that in states that don't expand Medicaid coverage, millions won't be able to obtain coverage and the ACA's intended benefits are diluted."

The impact on future budgets is a concern for state officials on either side of the argument. For state officials considering expanding Medicaid to 133 percent of the federal poverty level, there is uncertainty. For example, while the federal government will pay 100 percent of the costs of the newly-covered Medicaid population for the first three years of expansion, beginning in 2017, this cost share will gradually phase down to just 90 percent by 2020. KPMG projects this change will result in an average cost share of more than $200 million per year for a typical state. The report also notes that the law provides no guarantees for what the federal cost share might be beyond 2020.

"Although expansion creates budget uncertainties," said Hencoski, "some governors who have made the decision to expand cite the projected positive impacts associated with individuals having better access to quality healthcare, reduced overall medical expenditures, and likely increased economic activity. These impacts, however, are difficult to quantify so expansion is not a clear-cut decision."

States that choose not to expand Medicaid also face a range of complicated operational, budgetary, and policy considerations that affect both the state and federal government. Hencoski cites three in the analysis.

  • State-based health exchanges could see a shortage of users: States that don't expand – but are operating their own state-based health insurance exchange -- can't recoup the cost for enrolling individuals in Medicaid from their Federal Medical Assistance Program (FMAP) grants. Without this population, the overhead costs associated with operating the exchange will instead need to be fully absorbed by the portion of the exchange handling subsidies for commercial health plans. Without Medicaid contributing through FMAP grants, it will be far more difficult for each state exchange to be financially independent and sustainable by 2015, a requirement of the ACA.
  • Fairness questions: In states that don't expand, 5.3 million individuals will fall above their state's Medicaid eligibility income level – but below the federal poverty level and thus not eligible to purchase coverage through APTC subsidies. Yet in those same states, individuals at between 100 percent and 400 percent of the federal poverty level can receive thousands of dollars in APTC subsidies to purchase coverage through an exchange. Several states have sought to address this inequity by seeking permission to only expand their Medicaid programs to 100 percent of the poverty level – but not up to 133 percent that the law had envisioned. However, the federal government has rejected these requests, making it an all or nothing proposition.
  • The impact of uncompensated care: The ACA was meant to reduce the burden health systems carry in the form of uncompensated care for the uninsured, estimated in 2004 to cost $40.7 billion annually. By not achieving the projected reduction in the uninsured population, the healthcare system will continue to bear the burden of caring for these individuals when their needs become critical, and, as a result, more costly. It's also worth noting that the ACA had assumed a $56 billion reduction in the Disproportionate Share Hospital payments – federal grants to hospitals to help defray the cost of coverage for uncompensated health care – to help offset the costs associated with implementing the ACA.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.

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CONTACT: Jim McGann/Matt Weiss 202-533-5783/201-307-8138 jmcgann@kpmg.com/ mweiss@kpmg.com

Source:KPMG LLP