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Report: More Medicaid worth $2B to state

State officials made the right choice by opting to expand Maryland’s Medicaid program, according to a recent report assessing the economic impact of the expansion, which takes effect in January.

It seems counterintuitive that extending Medicaid eligibility to an additional 146,000 people would produce more than $2 billion in net savings for the state from 2014 to 2020 — and some health care providers are skeptical — but that’s exactly what the report’s authors say will happen through a combination of direct savings to Medicaid, new state revenue and reduced spending on other health care programs.

Additionally, Maryland could welcome up to 10,000 new jobs (both in health care and other industries) by 2015 and, by 2020, generate an extra $270 million in tax revenue and $5.5 billion in gross state product, according to the report, which was prepared by George Washington University in Washington and Regional Economic Models Inc. in Massachusetts.

The Affordable Care Act allows states to choose whether to expand eligibility for Medicaid, the public insurance program for low-income or disabled adults, to people who earn up to 138 percent of the federal poverty line (about $32,500 for a family of four). Maryland is among the 25 states that have opted for expansion so far.

Currently, the state and federal government split the cost of insuring Medicaid enrollees 50-50. If a state expands eligibility, Uncle Sam will cover 100 percent of the cost of covering the newly eligible enrollees from 2014 to 2016. The federal coverage gradually declines to 90 percent in 2020 and beyond.

Physicians, pharmacies and other health care providers in Maryland could gain an estimated $8 billion in extra federal funds during that period due to the expansion, the report says.

Health Care for the Homeless is one such provider. President and CEO Kevin Lindamood said he’s looking forward to the expansion because it means his organization, which focuses on Baltimore, will be able to bill Medicaid for a greater percentage of its patients, most of whom are uninsured.

In fact, HCH recently upgraded its billing and practice management systems to ensure the organization could handle the expected increase in Medicaid patient volume, whose billing currently makes up 20 percent of its revenue, he said.

It’s unclear, however, how much increased revenue, if any, Maryland’s hospitals will see because of the Medicaid expansion, said Carmela Coyle, president of the Maryland Hospital Association. Hospital rates are set by the Health Services Cost Review Commission, a state panel. One of the factors the HSCRC uses to determine rates is how many patients are unable to pay for their care. That number would decrease if more patients were covered by Medicaid.

But will the patients’ behavior change?

“Patients that don’t have insurance tend to let their health care needs go unattended and, eventually, when they need care, they end up in emergency departments,” where care is very expensive, said Joseph Hoffman, chief financial officer for Upper Chesapeake Health System in Bel Air. “So from that perspective, Medicaid expansion would be a positive for hospitals in general.”

But increasing access to health insurance won’t totally eliminate uncompensated care, Coyle said. People might not sign up for coverage right away, she said.

Coyle urged the HSCRC to be cautious when adjusting the provisions for uncompensated care built into the rates.

“We hope we’ll be able to make significant reductions in uncompensated care, but we don’t know,” she said. “So we have to be careful from a policy perspective to not reduce our commitment to covering uncompensated care before we know we’ve made a difference.”

Hoffman said he expects habits will die hard among newly insured people. Many will probably continue to visit emergency rooms by default, rather than use primary care and preventive services, he said.

For that reason, Hoffman is skeptical of the report’s projected job increases (which fluctuate between 9,500 and 10,000 extra jobs in a given year between 2014 and 2020). He doubts the state will need as many more nurses, technicians, pharmacists and other extra providers as the report predicts, because he doesn’t agree that demand for all kinds of care will skyrocket.

“Just because someone has insurance doesn’t mean they’re going to access health care,” Hoffman said. “I think many patients, at least in the short term, once they get Medicaid, they’re still going to access health care as they’ve typically done, and that’s typically been the emergency department.”

Hoffman called the report’s estimated $2 billion in net savings “a real stretch,” adding that he doesn’t expect the indirect benefits to the workforce or the state economy to materialize until well down the line.

“Maybe once people’s habits change,” he said.

The report says it’s difficult to predict how many Marylanders will actually participate in the expanded Medicaid program. The Urban Institute estimates 64,000 people who are currently eligible will sign up for Medicaid by 2022 because of all the publicity, bringing the total to 210,000 new enrollees.

State officials plan to release data next week about the number of people who have so far enrolled in Medicaid via the new online exchange, Maryland Health Connection, as well as enrollment for other plans sold there.

More than 84,000 Marylanders were automatically enrolled in Medicaid because they were in another state program, Primary Adult Care. PAC is similar to Medicaid but covers limited services. PAC had received the usual 50 percent federal match, but in 2014, those people will be treated as “newly eligible” for Medicaid, so the federal government will cover 100 percent of their costs.

That generates savings for the state of about $120 million, the report said.