08/03/2012 05:26 pm ET Updated Oct 03, 2012

The Cost of Expanding (and Not Expanding) Medicaid

Under the Affordable Care Act, Medicaid eligibility will be expanded to all U.S. citizens under the age of 65 with incomes less than 138 percent of the federal poverty level beginning in 2014 -- unless some states decide to opt out of the expansion. That possibility arose as a result of the Supreme Court ruling on the ACA.

Some governors have already announced their intention to drop out, citing budget concerns but also partly for political reasons. Colorado and many others states will make their decisions after getting cost estimates.

The cost of the expansions should be measured in three ways: the number of lives saved, the number of lives improved, and the bottom-line cost in dollars and cents. All of these numbers are very hard to calculate.

Let's begin with the human costs. The New England Journal of Medicine released a report last week that attempted to quantify the benefits of expanding Medicaid to those who are currently uninsured. It compared six states with similar population sizes and demographic characteristics, three of which expanded Medicaid and three that did not. The report concluded that the expansion of coverage reduced the mortality rate among adults in those states, especially for people between the ages of 35 and 65, minorities and those living in poorer counties.

The results showed that 2,840 deaths were prevented each year in states where at least 500,000 adults had acquired Medicaid coverage. Based upon these findings, one death was averted for every 176 previously uninsured adults who gained coverage.

The non-partisan Congressional Budget Office quantified the national consequences of states opting out of the Medicaid expansions. According to the CBO, in 10 years, as many as six million fewer people will be covered by Medicaid and the Children's Health Insurance Program as a result of states opting out. Of that number, an estimated three million people will purchase subsidized private coverage through insurance exchanges, and the remaining three million will stay uninsured.

In 2022, based on a rough calculation using data from the CBO and Journal of Medicine, the inclusion of an additional three million under Medicaid could ward off as many as 17,000 deaths across the United States.

As for improving quality of life, results are more difficult to quantify. But evidence suggests that gaining insurance coverage improves both health outcomes and quality of life. In 2009, 45 percent of those living under the poverty line were uninsured. In that same year, adults without health insurance were more likely to be diagnosed with later stage cancers and to die from trauma or other serious acute conditions, such as heart attacks or strokes, according to the Institute of Medicine. Uninsured children had less access to preventive services -- immunizations, medicine and dental care, for example ­-- and more often suffered unmet health care needs, avoidable hospitalizations and missed school days.

The remaining question is how much the expansions will cost state and federal taxpayers over time (since the U.S. government ultimately will pay 90 percent of the cost).

In Colorado, those estimates have varied significantly. Colorado's attorney general, one of 26 state attorneys general who fought the Affordable Care Act, stated that Colorado's share of the expansion costs could reach $1 billion over the next decade. An oft-cited report from the Urban Institute and the Kaiser Family Foundation (May 2010) projects that Colorado's share of the Medicaid expansions (from 2014 through 2019) could range from $286 million to $470 million, depending on the level of participation in the program.

A third estimate comes from the Colorado Department of Health Care Policy and Financing (HCPF, April 2010), which uses a more detailed analysis.

A key component of this report is the impact of the hospital provider fee created by the Colorado Health Care Affordability Act. This act levies a fee on Colorado hospitals -- with their support and agreement -- in order to receive a matching amount in federal funding. The fee and matching funds are used to better compensate hospitals that treat large numbers of uninsured and Medicaid patients, as well as to expand Medicaid eligibility in Colorado.

According to HCPF's projections, the expansions under the ACA would increase Medicaid enrollment by 144,900 people by the year 2020, above and beyond the expansion created by the provider fee. The bottom-line cost to the state's General Fund, between 2014 and 2020, would be approximately $190.7 million -- well below both the attorney general's estimate and Urban Institute/Kaiser projection.

As a result of these widely varying, and dated, estimates, HCPF is developing a revised estimate for the cost of the Medicaid expansions. Among other things, it will be based on new caseload and cost data, as well as an updated evaluation of the expansions created by the provider fee. A report will be released in the fall.

Yet even this new report may not provide a definitive answer. A new estimate must deal with many variables, including: the size of this new population, its level of participation, new projections for the monthly medical cost of each enrollee, and the number of people currently eligible for Medicaid who might enroll after 2014. All of these variables are difficult to predict, and the report will likely project a range of cost estimates based on a number of scenarios.

Even with new estimates, state policymakers need to consider how national budget reduction efforts and the impending federal "fiscal cliff" might alter future federal contributions to the expansions and Colorado's hospital provider fee. In the near term, at least, those factors are impossible to know.

In the final analysis, any projection or forecast is subject to uncertainty, and we must accept limitations for each. Those who support or oppose the Medicaid expansions will likely use reported numbers that best reinforce their position.

What we can say with more certainty, though, is that insurance coverage both improves and saves lives. We may argue over numbers, but the benefits for people are undeniable. The decision of Colorado, or any other state, cannot and should not be based upon dollars and cents alone.