May 26, 2010 / 5:36 PM / 10 years ago

Healthcare reform costs shift to cash-strapped states

WASHINGTON (Reuters) - Now that U.S. healthcare reform is becoming a reality, states are sorting out how they will pay for two of the plan’s major components that will rest largely on their shoulders at the same time they are pulling out of a long economic downturn

A study released on Wednesday uncovered one bright spot for paying for Medicaid, the healthcare plan for the poor administered by the states and paid for with matching funds from the federal government.

Under the healthcare reforms championed by President Barack Obama, states will generally see their Medicaid costs rise mildly, while they are in line for more federal dollars, according to the study.

The plan made more people eligible for Medicaid, which should have driven states’ costs higher. Congress, though, included a caveat for the federal government to reimburse the costs of all new enrollees by 100 percent.

The Kaiser study found that through 2019, the year when the U.S. government will pull back and reimburse 93 percent of the costs of those participants, federal spending on Medicaid will increase by at least $443.5 billion.

On the other hand, states will see an increase of only $21.1 billion. Other increased federal funding streams will draw down the amounts states have to put into Medicaid, as well, Kaiser found.

That means that under conservative estimates, Maine’s Medicaid spending will decrease 1.5 percent and Colorado’s will slip 0.5 percent, according to the study. Massachusetts and Vermont, which established their own health plans, will spend 2.1 percent and 0.6 percent less, respectively.

MEDICAID ROLLS TO SWELL

When healthcare reform was working its way through Congress in November, California’s chief deputy director of health care programs said the state could not afford its current Medicaid program — let alone an expansion.

California will have the most new enrollees, at least 2.01 million people through 2019, according to the Kaiser study.

Still, the most populous state will have to pay only 1.5 percent more for Medicaid, while federal spending there on the program will rise at least 23 percent.

Texas will follow, with at least 1.8 million new enrollees. In a twist, federal funds flowing into Texas will jump 39 percent because the Lone Star state’s small Medicaid program will mushroom under the new plan.

“States with low coverage today are expected to see large increases in federal spending,” the report said.

According to the foundation’s more conservative estimates, six states will have between half a million and a million new people enroll in Medicaid through 2019. Florida could have at least 951,622 people sign up.

Oregon will experience the largest jump in federal spending on Medicaid — 51 percent.

Meanwhile, Mississippi will have the biggest increase in state spending at 5 percent.

STRUGGLING TO PAY FOR UPGRADES

There are many factors that will come into play as the historic healthcare reform plan unfolds in states.

“Right now, states are still in the midst of a major economic downturn facing historic declines in revenues and increased demand for public programs,” Kaiser said. “Heading into health reform, some states will move quickly to promote coverage with efforts that may begin in 2010, while others may move more slowly.”

When it comes to Medicaid, states are mostly concerned with administering the new system, said Raymond Scheppach, executive director of the National Governors Association. They will have to upgrade their databases, while building new databases to track the enrollees eligible for the 100 percent reimbursement — and there is no federal funding for the technology and staff.

Many of the databases are weak because states could not afford upgrades during the longest and deepest recession since the end of World War Two. And, states will struggle to pay staff at a time when they are furloughing and laying off workers.

States are in weekly conference calls with the U.S. Health and Human Services department. The states will send representatives to meet with the federal agencies at the end of June, Scheppach said.

WORRY NO. 1: INSURANCE EXCHANGES

Medicaid, though, is not the top preoccupation for states. Their biggest concern is building the exchanges where those who do not have employer-sponsored health insurance and do not qualify for Medicaid can buy insurance, he said.

The exchanges must be fully operational by 2014.

The possibilities for how states operate the exchanges span a wide spectrum and the healthcare law left most of the decisions up to the states.

“There are not a lot of models on how exactly you do the exchanges,” Scheppach said, adding that there are also expenses in offering incentives to insurance companies to participate.

STATE POLITICS STILL IN PLAY

The healthcare reform plan was politically explosive at the federal level for most of the winter and spring. Now, it is a political battle in states. Some are suing the U.S. government, or deciding what length to comply with the law, which could also drive up expenses.

On Monday, the federal government asked the U.S. District Court for the Eastern District of Virginia to dismiss a lawsuit from Virginia, saying federal law trumps state law. The U.S. government also contended it has the right to regulate commerce such as health insurance under the Constitution.

But Virginia’s attorney general would not back down, calling the health law’s stipulation that all Americans have insurance unconstitutional.

“We contend that if a person decides not to buy health insurance, that person — by definition — is not engaging in commerce, and should not be subject to a federal mandate,” Attorney General Ken Cuccinelli said in a statement.

The state will respond to the motion to dismiss by June 7.

In November, too, states will have gubernatorial elections. The National Governors Association expects 24 new governors to move into office, and have to take over the reins of healthcare reform. (Reporting by Lisa Lambert; Editing by Jan Paschal)

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