Iowa economist sees Medicaid costs exceeding $160 million a year

Iowa’s “unique state-based alternative” to Obamacare will save taxpayers money, Branstad official says

James Q. Lynch
Published: December 27 2013 | 1:31 pm - Updated: 29 March 2014 | 1:20 am in

Iowa’s Medicaid expansion could cost more than $160 million a year within a decade, according to a northwest Iowa economics professor.

The net number of Medicaid participants in Iowa could increase by 515,000 in 2014 and by 744,000 over the next 10 years, according Jeremy Horpedahl, an associate professor of economics at Buena Vista University in Storm Lake.

That’s more than the annual operating budget for the University of Northern Iowa, Horpedahl said as way to put it in perspective.

Based on his analysis from a U.S. Department of Health and Human Services-funded model, Horpedahl said the state’s cost of covering new Medicaid beneficiaries could reach $164 million every year by 2014.

“Medicaid is already one of Iowa's largest budget expenditures, and within a decade it could add $164 million to the Iowa state budget with the federal government kicking in about $1.5 billion to fund the expansion,” Horpedahl said.

A spokesman for Gov. Terry Branstad didn’t dispute numbers presented by Horpedahl and Stephen Parente, a University of Minnesota professor specializing in health economics, information technology and health insurance. However, Jimmy Centers argued Iowa’s “unique state-based alternative” to Obamacare – the Affordable Care Act – will save taxpayers money.

“The innovative Iowa plan -- designed to improve the health of low-income Iowans -- returns savings to Iowa taxpayers through lower property taxes,” Centers said.

He also pointed out that the Heritage Foundation estimates Iowans will save $547 million over 10 years through the enhanced federal match.

However, as an economist, Horpedahl thinks it’s a mistake to treat this as “free money” because it will be paid for by taxpayers in other states.

The Heritage Foundation also found that Iowa already has above-average enrollment in Medicaid per capita, and is one of only 10 states that will see those savings, “which means we are shifting costs to other states,” Horpedahl said.

“Iowa already receives more than $1 in federal benefits for every $1 in federal taxes we pay, so as an economist thinking about the country as a whole, those predicted tax savings are really tax shifting to taxpayers in other states,” he explained.

Under the Affordable Care Act, the federal government will pay all the costs of the expanded Medicaid program through 2016, after which reimbursement will gradually fall to 90 percent.

The Iowa Health and Wellness plan would extend Medicaid to eligible Iowans who make up to 100 percent of poverty, or about $11,500 per year for an individual.

Meanwhile, those who make up to 138 percent of poverty, or about $15,900 a year, would get private insurance through the Affordable Care Act’s marketplace.

The increase is not wholly unexpected as the point of Obamacare is to expand health care coverage for Americans. However, Horpedahl estimates more than one-quarter of newly covered individuals would have purchased their own private insurance even without the subsidies. That means the plan increases costs more than would be necessary to cover individuals who were previously uninsured.

“And because of the way Iowa is expanding coverage -- by using the exchange subsidies for those above the poverty line rather than Medicaid -- the expenses could be even larger than our study estimates,” he said.

His analysis used an estimate of about $2,200 based on the current annual cost per Medicaid beneficiary in Iowa. Bronze plans, the cheapest plans on the Obamacare exchanges, have annual premiums of over $3,000 for individuals over 50.

“So the expense could be larger depending on the demographics of those that sign up and what plans they choose,” Horpedahl said.

Sen. Amanda Ragan, D-Mason City, one of the key players in crafting the Iowa Health and Wellness Plan that was approved with bipartisan support earlier this year, said the costs, including the increase Horpedahl is warning of, have to be viewed within the context of the IowaCare program that it replaces.

“While it is likely that the Iowa Health and Wellness Plan will cost more than IowaCare because it is a more robust, comprehensive plan, the state will actually save money in the first few years,” she said. “We’ll be investing those saved dollars in developing a health care delivery system that helps people to become healthier and, therefore, reduce the growth in healthcare costs long-term.”

A significant portion of the costs of the new plan would have been spent on IowaCare if the Iowa Health and Wellness Plan had not been enacted.

Ragan went on to point out that many of the costs in questions already are being incurred through charity care and uncompensated care – costs absorbed by hospitals and other health care providers.

The Medicaid expansion plan captures some of those costs and prevents those costs from being passed on to others through higher private insurances rate increases, she said.

Through the Iowa Health and Wellness Plan, Ragan said, Iowans will have access to routine, preventative care “that should reduce the need for more expensive procedures in the future, slowing the rate of growth of the health care system.”

 

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