The Cost of a Medicaid for All Buy-in

With the recent discussion of a buy-in option for Medicaid, how could this plan impact the uninsured population of Minnesota? The preceding article discussed the generalities of a Medicaid buy-in, and this article will continue that analysis by examining the impact of a buy-in, since determining individual contributions is crucial to lowering the cost for Minnesotan taxpayers, as well as competing with private insurance companies on the individual market. According to a recent Minnesota survey, only 7.7% of Minnesota’s uninsured population is ineligible for any employer, private, or public health insurance. This means that 92.3% of uninsured Minnesotans are eligible for health insurance already.

For uninsured Minnesotans, either many are not aware of the opportunities they have to gain health insurance (e.g. not knowing where to apply for public insurance or failing to utilize insurance provided by their employer), they refuse to buy insurance, and/or they decide that the annual penalty is a better financial choice than paying much more for health insurance they won’t use. For this last group, the decision probably hinges on this conundrum (assuming they make at least 201% of the federal poverty rate): do they pay a penalty on their taxes, around $700 for an adult, or do they pay anywhere from $129 to $325 a month for a silver plan with all of the subsidies on the exchange (based on the Kaiser subsidy calculator)?

Those making under 200% of poverty are eligible for MinnesotaCare, while those making under 138% are eligible for Medicaid. MinnesotaCare and Medicaid recipients both have very low (or non-existent) premiums, and the gap between those on MinnesotaCare and those on the individual market is quite substantial. In 2015, MinnesotaCare recipients at 200% of the poverty limit spent $960 per year on premiums, while those on the individual market at 201% of poverty spent $1,509 per year, according to the Health Care Financing Task Force. As a result, a public option like the Medicaid buy-in would need to cost less than private insurance available on the exchange to incentivize purchasing, but Minnesota would need to balance that against the need to subsidize the cost to the state.

This is important in determining how much (if any) the federal government would contribute to a Minnesota pubic Medicaid option. Medicare and Medicaid were established in 1965 as a safeguard for elderly and low-income patients while simultaneously guaranteeing that providers would be paid to serve those patient groups (as opposed to serving the patients, charging the amount owed, and leaving those without the ability to pay with the entire bill).

Medicaid, which serves low-income patients for primary and hospital care (as well as other services), is paid for by the federal and state governments, roughly splitting the costs 50-50. In 2016, Minnesota actually only paid for 43% of the costs because the federal government splits the costs for newly eligible Medicaid patients at a 90-10 rate. Minnesota ended up spending about $4.8 billion for Medicaid in 2016, while the federal government spent $6.4 billion.

This system is highly regulated and requires waivers to add additional services (e.g. a pubic Medicaid option). If the federal government decided not to help pay for the buy-in at all, the only way to prevent the entire cost coming out of the state budget would be to require premiums and copays for those seeking to purchase the public option.

Finally, determining which services would be included for a “buy-in” plan is important for planning the long-term costs. In Minnesota, only 44% of Medicaid spending goes to managed care populations such as low-income families and children up to 133% of the Federal Poverty Level, and 42% of Medicaid spending is for non-disabled or elderly Americans with more intensive, long-term care needs who are way below the poverty line.

Long-term care (nursing homes, hospice care, personal care assistants, and other similar services) is a more significant portion of spending in Minnesota than spending on other Medicaid populations. This is important to note, as these services are expensive and inflate the estimated costs for roughly uninsured 234,000 Minnesotans, almost none of whom are elderly or disabled. The following analysis will assume that the product available as a Medicaid buy-in plan would be a platinum-level plan with a very high actuarial value (meaning the plan covers most of the cost) and a great set of benefits.

The average Medical Assistance recipient under 18 years of age costs the government $3,569 annually, with adults covering $5,132 annually according to Kaiser. If every single eligible Minnesotan decided to buy in, the annual cost would be $2.074 billion. This would also generate revenues of $359 million for adults and $52 million for children, totaling $403 million annually. Assuming that the buy-in could completely eliminate the need for advance premium tax credits, Minnesota could save an additional $331.5 million. The state would likely also apply for a 1332 waiver to capture those tax credits, which means a Medicaid buy-in could, in theory, cost roughly $1.11 billion per year in Minnesota (or $2.22 billion per biennium). This would be a 15% increase in the Health and Human Services budget for the 2017-18 biennium (although realistically this would be enacted during the first year in the 2019-2010 biennium since the first year of each biennium is the budgeting year).

There are several caveats regarding this analysis that must be mentioned. First, many of the uninsured in Minnesota are eligible for some form of health insurance. As previously mentioned, fewer than 8% of the uninsured would have the Medicaid buy-in as their only option; everybody else is technically eligible for some other form of insurance. This implies that some of the uninsured in Minnesota simply do not know their available options, do not like their options, or are not interested in health insurance, and creating a new public option wouldn’t necessarily change that.

Even today, 35% of Americans don’t know that the Affordable Care Act and Obamacare are the same thing. 60% of 64 year-olds don’t know the basics of Medicare. Finally, in a Rice University study, 45-50% of uninsured respondents didn’t know what a premium, deductible, or copay is. This is all to say that for the remaining uninsured, there is a hugely significant knowledge barrier that keeps people out of the markets. A Medicaid buy-in would help thousands of Minnesotans, but thousands more would remain unreached and uninsured. Those most likely to purchase the buy-in would already be enrolled in an individual plan through the exchange, which means the overall uninsured rate would likely not see too large of a drop without a significant outreach effort.

Second, there is a fairly large margin for error in the estimates of uninsured Minnesotans. Between the several different estimates of uninsired (the SHADAC survey, MNsure enrollment numbers, US Census estimates, gross estimates of those on the individual market but not buying a plan through the exchange), and the general uncertainty of who is insured or when/why people stop paying premiums on their public insurance, It is safe to say that the number of uninsured in Minnesota could differ from published numbers.

Third, in all likelihood, those eligible for health insurance besides a Medicaid buy-in would find other low-cost options when they applied. If the application is added to MNsure’s general application for insurance on the individual market, the website would likely flag most of the applicants as eligible for other programs that cost less for the enrollee. Half of Minnesota’s uninsured population in 2015 made less than 200% of the poverty line, which means they would be eligible for MinnesotaCare or Medical Assistance as well as the buy-in.

Finally, if the people who have the best outcomes for a Medicaid buy-in are Minnesotans on the individual market who make too much to be eligible for Medicaid or MinnesotaCare (over 200% of poverty), or tax credits, these folks would have the choice of continuing to pay for a plan that costs more than the buy-in by design, or switching at the next open enrollment period. Assuming that their primary care physicians would continue to take them as patients once they switch, there would be very little incentive to remain on private insurance. If enough Minnesotans left their private insurance behind, the market could collapse. Given that possibility, the final article in this series will evaluate the state of the health care market, and who stands to gain from a Medicaid buy-in.