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New Medicaid Eligibility Rules Strike Fear in States, Insurers

Ernie Shannon's picture

The impact of the nation’s new health insurance law on Medicaid is far-reaching and governments, insurers, and others are only now coming to grips with the costs the new law will impose upon them.

By 2014 several million more people will be eligible for Medicaid than would have been without the new health care law and the cost to the federal government and the states could exceed $70 billion over five years. Also, as a way to pay for the new costs, the feds will levy more taxes on health insurance premiums, including insurers providing coverage to recipients of Medicaid.

Beginning in 2014, Medicaid will be available to the non-elderly, non-pregnant, childless adults with income equal to 133 percent of the Federal Poverty Level – and once an adjustment is added – to 138 percent of the Federal Poverty Level. For 2010 that would have included single adults with incomes of $14,404 or below and income up to $29,327 for a family of four. The income inclusion means that people receiving Social Security or Supplemental Security Income (SSI), along with family members in their household, will now be eligible for Medicaid, significantly increasing the number of people receiving the federal benefit program and driving up the costs. The key difference is how incomes levels are derived. In 2014, the federal government will begin using the modified adjusted gross income methodology (MAGI) to determine income and MAGI doesn’t include non-taxable Social Security and SSI. For many Social Security and SSI recipients, that exclusion reduces household income and, in many cases, brings individuals and families below 138 percent of the Federal Poverty Level necessary to quality for Medicaid.

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Milliman, Inc., an actuarial firm with a reputation for providing actuarial consulting services to the health care industry, recently published a detailed overview of the Affordable Care Act’s imprint on Medicaid. The report provided an example of a husband and wife with an income of $20,000 supplemented with another $23,000 of Social Security income for a total household income of $43,000 – too much for Medicaid today. In two years, however, that couple’s income will be figured at $20,000, minus the Social Security checks, making the couple just barely eligible for Medicaid. Milliman estimates that the change will bring an additional 2.3 million Americans under the Medicaid umbrella than would have qualified otherwise.

While the Milliman report did not venture into the costs associated with the eligibility changes, an organization called Medicaid Health Plans of America has gone there and they estimate that Medicaid costs will grow by $73 billion between 2014 – 2019. That includes $13.6 billion for the states and $24.8 billion for the federal government when using the state-federal matching formula. The $13.6 billion will be a significant add-on to many state budgets already in the red.

According to John McDonnough who has published a detailed book on the development, passage, and implementation of the Affordable Care Act, the new Medicaid provisions grew out of a desire to provide the program to everyone “living in poverty.” The question, McDonnough says, was at what level the new Medicaid coverage should begin. Initially, some in Congress pushed for a Medicaid eligibility level of 100 percent of the Federal Poverty Level. The insurance industry, namely America’s Health Insurance Plans and Blue Cross Blue Shield Association, agreed. Others suggested 133 percent because that was the formula for determining other benefits for children under six years of age and for pregnant women. Some in Congress even asked for limits to be as high as 150 percent of the Federal Poverty Level, but there was no stomach for the spending that would have required, McDonnough said. Eventually, Congress and the Obama Administration settled on 133 percent.

State legislatures, governors, and Medicaid directors have less than two years to find solutions to the additional costs imposed by the Affordable Care Act’s new Medicaid regulations. Many state budget directors are already calling for Congress to revisit the Medicaid portion of the new law with the hope that the either levels will be reduced or that the federal government will bear a greater burden of the cost.