Opting out of Medicaid 2.0 creates secondary problems

August 1, 2012

Medicaid 2.0 will hit state markets in the pocketbook.

Final cost and coverage totals will depend on how many states ultimately adopt the new Medicaid expansion-unofficially dubbed by some as "Medicaid 2.0." Several governors have threatened to opt out, but there's still time for political wrangling between now and 2014.

Last month, the Congressional Budget Office (CBO) reported that spending for the law's coverage provisions would be $84 billion lower than previously thought, tweaking the net cost down from the original $1.25 trillion to $1.16 trillion over 10 years' time. Much of the reduction comes from the recognition that several states probably won't implement Medicaid 2.0.

According to the update, 3 million people will now go to the exchanges instead of Medicaid, and the other 3 million will remain uninsured.

MEDICAID HAS A DONUT HOLE

In states that opt out, there's more bad news: Their Medicaid programs will now have a donut hole. Low-income adults who don't qualify for Medicaid 1.0-mostly adults without children-will find themselves in a new coverage gap:

To make matters worse, they will also face financial penalties for not having qualified coverage to meet PPACA's individual mandate rule. Sure, the very poor can claim a hardship exemption, but that won't account for everyone.

Texas, for example, has 1.7 million adults who could fall into the donut hole if the state decides to opt out-which it might. Even if half can claim an exemption, that still leaves a lot of people at a disadvantage.

Reduced Medicaid coverage might be "savings" for the federal government, but it is virtually guaranteed to create a new problem for the states in the form of uncompensated care. Providers are already pressuring governors to go ahead with Medicaid 2.0 because they dread the idea of more unpaid services.

Private plans should also take note because uncompensated care historically translates into cost shifting. Plans in states that forgo Medicaid 2.0 will already be missing out on some new enrollees and won't be particularly happy to absorb even more costs on top of it.

It's certainly in the best interest of payers and providers to substantiate the business case for expansion as soon as possible and share that information with whomever will listen. However, be prepared to discuss how Medicaid will be improved so states will see the move as worthwhile.

Julie Miller is editor-in-chief of MANAGED HEALTHCARE EXECUTIVE. She can be reached at julie.miller@advanstar.com