Friday, July 13, 2012

The Individual Mandate Explained, Part 5

Round up: Supreme Court rules that the individual mandate is a tax and therefore constitutional, but strikes down a provision that forced states to increase their Medicaid spending lest they lose all of it. This ruling was a very unexpected turn of events that nobody saw coming.



So the question is, are people - specifically, poor people - better off with individual mandate or with Medicaid expansion? 

The individual mandate was predicted to have an additional 12 million people covered by insurance by 2020. Medicaid expansion, which is increasing the eligibility from 100 to 133 percent of the federal poverty line, was predicted to enroll between 16 and 18 million people by the year 2020. Depending on which states opt out, that number is going to fall. My rough estimate, based on which governors who have clearly expressed opposition to expansion, is that 10 million people will still get coverage through Medicaid expansion.

Medicaid targets those beneath or near the poverty line, while the individual mandate targets healthy people of all age brackets that would have chosen not to buy insurance. It's pretty clear that the single payer Medicaid expansion was the real piece of the puzzle that got ObamaCare to its 30 million additional people covered under health insurance - especially those who could not afford it the most. Medicaid expansion is the most progressive slice of the ACA pie. 

On the face of it, Medicaid expansion is pretty sweet deal for the states. The federal government covers 100 percent of costs for the first 3 years and then it slowly reduces it to 90 percent by the year 2020 and there on out. It's not free money, but its still a great deal. So why will states choose not to participate in Medicaid expansion?

Medicaid is a series of programs that states get choose which ones to implement and then get reimbursed for at different rates accordingly. States also get to choose who qualifies and how intensely they are going to get people to come out of the woodwork to sign up for these programs. The current average reimbursement rate is about 60 percent of all costs spent, but can vary widely between states. Some states - mostly the more liberal ones - have very robust programs that have low eligibility requirements and the maximum income goes up to 100 percent of the poverty line.  Some states - mostly the more conservative ones - have very spartan programs that have high eligibility requirements and the maximum income is as low as 26 percent of the poverty line.

Now if you are a state that has a full Medicaid program - then this really is a sweet deal for you. Great. More free federal money for things that you would have liked to do anyways. But if you are state that has a spartan Medicaid program - you have to greatly expand your eligibility requirements before you get to the pool of free money. Everyone between the 100 and 133 percent is completely covered - which in Texas is 2.1 million people - but to get there they have to cover everyone between the 26 to 100 of the federal poverty line, which is only going to be reimbursed at 60 percent. Not such a great deal - especially when a lot of state government are already tight on money.

 It's the donut hole problem, again.

Hypothetical - If the ACA was implemented as it was written, then states would not have a choice but to cover all of these people. State-level taxes would have had to go up to cover this federal mandate, which is a very unpopular move. On the plus side, the program and benefits derived from it would have been more equal state to state. Medicaid would have started to look much more like a national program than a strange patchwork of state laws.

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