An Analysis of the Proposed Medicaid Expansion in Michigan

June 14, 2013

Michigan policymakers must decide whether to expand the state's Medicaid program to cover people newly eligible for federal Medicaid subsidies under the federal Affordable Care Act of 2010, say Devon Herrick, a senior fellow with the National Center for Policy Analysis, and Linda Gorman, director of the Health Policy Center at the Independence Institute.

Under the proposed state Medicaid expansion, the number of potential new enrollees is high.

  • In 2010-2011, approximately 1.2 million nonelderly people in Michigan had incomes of 138 percent or less of the federal poverty level and did not receive Medicaid.
  • Of these 1.2 million, an estimated 647,700 were uninsured.
  • Many of the low income individuals in both groups would be eligible for Medicaid under an expansion.

The size of the scheduled federal Medicaid subsidies for the newly eligible is also high. Congress is slated to pay 100 percent of the cost of these enrollees' Medicaid coverage from 2014 through 2016, with the percentage slowly declining to 90 percent by 2020.

The potential magnitude of these payments does not mean accepting them is the best policy, however.

  • For example, consider one target population of the expansion: people who are uninsured and have incomes between 100 percent and 138 percent of the federal poverty level.
  • Herrick and Gorman estimate that in 2014, approximately 177,000 uninsured Michiganders will fall into this category.
  • Assuming that about 70 percent -- around 124,000 -- of these newly eligible sign up for Medicaid, the additional cost during the following decade would be $475 million to state taxpayers and nearly $7 billion to federal taxpayers.

A Medicaid expansion would likely shift many insurance costs being borne by the private sector to state taxpayers.

  • Studies have found that as many as 50 percent or 60 percent of new enrollees following Medicaid expansions actually dropped their existing private insurance in order to enroll.
  • A conservative estimate is that 29 percent of new enrollees under a state Medicaid expansion would be people relinquishing their private insurance.

Presented with federal Medicaid-expansion subsidies, state policymakers may find it easy to underestimate both Medicaid's drawbacks and the availability of viable alternatives. Medicaid's problems, its current burden on state taxpayers and the high and unpredictable costs of a Medicaid expansion under the Affordable Care Act suggest policymakers should be wary of widening the program's scope.

Source: Devon M. Herrick and Linda Gorman, "An Analysis of the Proposed Medicaid Expansion in Michigan," Mackinac Center and National Center for Policy Analysis, June 14, 2013.

 

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