Friday, November 8, 2013

Medicaid Expansion Was (and Is) Affordable

I’ve made this point before: if Republicans in the 2013 Legislature thought that expanding Medicaid coverage would wreak havoc with the state’s current biennial budget, they were barking up the wrong tree. Fred Thomas tries to make that case in a recent Missoulian column, but he has to use bogus accounting to get there. He argues that when we were building the budget, projected spending on Medicaid expansion 8 years in the future would eat up a pretty big chunk (88%) of the increase in revenue we expected to receive this biennium compared to the prior one (2012-13).  But that number doesn’t mean much. If there was anything we should have been worried about, it was the cost of Medicaid expansion now. But that, it turns out, was pretty small.

But maybe Thomas has a point, and it’s this: even if the cost of expanding Medicaid was modest this biennium, we knew that for a variety of reasons it was projected to rise over time. So the question is, even though we could have easily afforded Medicaid expansion this time around, could paying for it in the future have gotten beyond our reach? In Thomas’s words, "blown a hole in the budget"?

To answer that question we need to compare the growth of Medicaid expansion spending with the growth of state General Fund revenue, and that, though it involves a little guesswork, is not too hard to do.
In the case of Medicaid expenditures, we have Gregg Davis’s projections of the annual cost to the state of expansion, from 2014 through 2021.* The annual increase in Medicaid expansion costs is just the year to year difference in Gregg’s projections.

Projecting the growth of General Fund revenue, particularly 8 years out, is a little trickier. The way I’ll do it here is to start with 2013 actual revenue, and grow it every year by 4.64%. That’s the average annual rate that General Fund revenue has grown at since 1988. Obviously sometimes growth is a little faster, and other times it’s slower, but those variations are hard to predict and are just as likely to be in one direction as another.** So I’ll stick with the 4.64%, project revenue out to 2021, and take the year to year change in that number as the annual dollar growth in revenue.

So now take a look at the chart. The red line shows the annual growth in spending from 2014 to 2021 that would have occurred due to Medicaid expansion (if the Legislature had agreed to it!). You can see it sort of jumps around, but over the 8 year period averages about $17 million. That $17 million a year is what we were supposed to be worried about: the increasing cost we would have been locked into had we expanded Medicaid.

The blue line shows projected annual growth in revenue over the same period. It grows steadily (each year the number of additional dollars available is more than the year before) but averages out at about $114 million.

The bottom line here is pretty clear: if we had decided to expand Medicaid, we would have had to commit about 15% of future revenue growth to paying for the increasing costs of the program. Looked at the other way around, 85% of future revenue growth would have been available for increased spending on schools, the University system, other social services, and the like. It may be a matter of opinion, but I don’t see any budgetary crisis lurking in those numbers.

A word of caution here: it’s not correct to take these numbers, which refer to the situation we were in in the legislature 7 months ago (when we were building the budget and expanding Medicaid this fiscal year was still an option), and use them to describe where we will be if we expand Medicaid now or next year. For one thing, we have lost the opportunity for one year (2014) of expansion entirely paid for by the Federal government. But the point still stands: the cost of Medicaid expansion, if we ever take it on, is going to increase in the future. But we will be able to afford those increases because in a growing economy, state revenue will rise as well.

* By “cost to the state” here I am referring to budgetary outlays. Gregg calculates another, lower cost figure that includes the effect of both reduced uncompensated care costs and increased taxes stemming from a very large infusion of Federal Medicaid spending. See An Estimate of the Economic Ramifications Attributable to the Potential Medicaid Expansion on the Montana Economy. This report should be available either from the Bureau of Business and Economic Research at UM or from the State Auditor’s office.

** I got these figures from a report by the Governor’s Budget Office. Click here for the full report.

Wednesday, November 6, 2013

What Medicaid Expansion in Oregon Really Tells Us

My last post commented on (okay, lambasted) a recent column in the Missoulian by Fred Thomas, in which the senator tries to justify the unjustifiable failure of the Montana Legislature to expand Medicaid coverage. In part, Thomas claims that the Legislature did the right thing because expanding Medicaid would have “blown a hole” in the state budget. That’s an argument that I think I’ve disposed of, although I’ll have a little more to say about it in a future post.

Thomas’s other claim is that expanding Medicaid will not do the newly covered any good, and he cites a study in the New England Journal of Medicine to prove it. He extracts this quote from the study, which compared the outcomes of 6,387 Oregonians who got Medicaid coverage to those of 5,842 who did not:

“This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured health outcomes in the first two years.”

Now I’m no expert on health care studies, but I can read. And what I read tells me that Thomas was pretty selective in quoting the New England Journal study. He’s even been a little selective in quoting the single sentence, because he left off half of it! The whole sentence reads:

“This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured health outcomes in the first two years, but it did increase the use of health care services, raise rate of diabetes detection and management, lower rates of depression and reduce financial strain.”

Apparently Thomas doesn’t think that giving people adequate medical care, managing their diabetes, helping them avoid depression, and saving them from medical bankruptcy are worth much.

Like I say, I’m no expert, but I don’t think Thomas is either. And no doubt each of thinks the other has an axe to grind. So if you want to find out what really happened in Oregon, take a look at this KUFM commentary from last May by Dr. Tom Roberts, who knows this stuff inside and out.* You’ll be glad you did.

* Since I originally posted this comment, I realized that Thomas wasn't the first Montana Republican to bash Medicaid expansion. Former state senator Joe Balyeat took his best shot at it in the Missoulian and Tom Roberts responded in print. All that may amount to more than you want to read, but if really want to get down in the weeds, you can read the study itself. Click here.

Tuesday, November 5, 2013

Nonsensical Budgeting

If you’re like me, you’ve probably found the relentless conservative Republican opposition to Medicaid expansion more than a little mystifying. After all, if here in Montana we agreed to Medicaid expansion under the terms of the Affordable Care Act, we would receive Federal funding that would create thousands of new jobs and hundreds of millions of dollars in new income. It would reduce hospital charges and private health insurance costs. And most important of all, it would provide good health insurance to 70,000 low income Montanans who now go uncovered. What’s not to like? How could legislators of sound mind and with the state’s best interests at heart turn down this opportunity? Anybody out there got an answer?

Well, yes! Senator Fred Thomas does.

But unfortunately, it makes no sense. Zero. Zilch. Nada.

I am not making this up. Writing in a recent Missoulian guest column, Thomas argues that the Legislature was “right to reject Obamacare Medicaid expansion” because of the “hole it would blow in our balanced budget.”  Here’s the way Thomas has it figured: when we were putting together the budget for the current (2014-15) biennium, we thought we’d have about $319 million more in revenue than we had in the biennium before. But Medicaid expansion was expected to cost the state $179 million in the 2018-19 biennium and $282 million in 2020-21.  So we would have used up “up to 88% of … current revenue growth” to fund Medicaid and thus could not have increased funding for schools, or the University system or other services without blowing that hole in our budget.  What Thomas has calculated here is that Medicaid costs six years in the future amount to 88% of our projected revenue growth right now.

What this calculation means is anybody's guess.

The numbers Thomas is using look okay. The go-to source for the economic effects of Medicaid expansion in Montana is a report by Gregg Davis at UM’s Bureau of Business and Economic Research.*  Davis provides both low and high estimates for the cost to the state of Medicaid expansion and Thomas is apparently using the high one.  You can argue the number if you want, but that’s really not the point.

If we want to know how much of our increased current revenue we are going to encumber through Medicaid expansion, we need to know how much our current Medicaid expenditures are going  to grow. But that number, which would mean something, is – surprise! –  a whole lot less than the one that Thomas randomly pulls out of the hat. In fact, Davis estimates that the state’s 2014-15 cost of Medicaid expansion would have fallen somewhere between $35 and $40 million. That means that expansion would have used up somewhere between 11 and 13 percent of the additional $319 million that Thomas says we can expect to take in. 

But wait! There’s more!

If the state had taken the plunge and spent $40 million this biennium to expand Medicaid, according to Davis the corresponding Federal contribution would have been $1.054 billion (yup, that’s billion with a b). That would have meant a whole lot of new jobs and new income for Montana, and of course a whole lot of new state and local tax revenue as well. How much? Davis puts it at $75 million. That’s above and beyond the $319 million Thomas is already counting on. We could have spent $40 million and collected $75 million more in new tax revenue than we thought we would.

So far from blowing a hole in the budget, far from gobbling up all the new revenue, Medicaid expansion, if we'd had the common sense to accept it, would have increased an already substantial budget surplus.

If all this sounds depressingly familiar, don’t be surprised. It’s business as usual. Whenever there’s a program that’s going to provide an essential and valuable service to the public, and anti-government conservatives don't like it, they monkey with the numbers and predict financial doom. If they’re lucky, they can even  make it sound like standing in the way of progress is the right thing to do. I mean, after all, think about how that shut down thing worked out.

An Estimate of the Economic Ramifications Attributable to the Potential Medicaid Expansion on the Montana Economy. Not exactly mellifluous, but heck, Gregg’s an economist. That’s the way we roll.