This article originally appeared on heartland.org.
Thirty-six states that rely on private managed-care programs to provide medical services to all or some of their Medicaid recipients are facing added costs caused by the Affordable Care Act, according to a report by the actuarial consulting firm Milliman.
The health care law imposes an annual tax on private health insurance plans, designed to recoup some of the profits earned by insurers from the new customers they are likely to gain because of the law.
The tax, however, also covers private plans that run Medicaid managed-care plans. These insurers, and ultimately the states, face up to $15 billion in added costs over 10 years for their share of the tax.
This could end up hurting Medicaid recipients, says Josh Archambault, a senior fellow at the Foundation for Government Accountability.
“The tax increases the cost of running Medicaid, and many states will further cut reimbursement rates to providers to compensate,” Archambault said. “This reduction will cause even more providers to drop out, making the quality and amount of care that patients can access even less. The tax will end up hurting the poor and disabled on Medicaid.”
Passed to State Budgets
The new tax is expected to raise $8 billion in 2014 and as much as $150 billion over the next 10 years, and will likely be passed along to consumers in the form of higher premiums, including for Medicaid managed care plans. The Milliman report says the tax will increase Medicaid premiums by up to 2.5 percent.
In recent years, states have allowed premium increases of only 1 or 2 percent annually, with some states actually cutting payments to plans, according to the report.
If Medicaid HMO plans are required to pay the new tax out of their profits, many are expected to exit the market rather than operate at a loss. In another twist, the fee is considered an “excise tax,” which is not deductible from corporate income taxes, amplifying its impact on profits.
“The premium tax will be a challenge for Medicaid managed-care plans, many of which are running deficits or making modest margins on their Medicaid plans,” said Gary Alexander, former Secretary of Health and Human Services for Rhode Island. “It will be difficult for them to absorb; any time you suddenly impact an industry, they will have to adjust, which means either less services or dropping out of the program altogether.”
Sal Nuzzo, vice president of policy at the James Madison Institute in Florida, also predicts managed care plans will exit the market if they aren’t permitted to pass along the tax to states.
“Medicaid managed care plans operate on a very thin average profit margin of 2 percent,” Nuzzo said. “If you ask the managed care plans to eat the ACA insurer tax, their profitability will evaporate.”
State Medicaid Programs Hit
The Milliman report estimates the Obamacare health insurer fee will increase Medicaid managed care premiums by $37 billion to $42 billion over ten years. Because both the states and the federal government share in funding Medicaid, the states’ share is expected to be between $13 and $15 billion.
States must come up with the money to pay their share of the tax, either by further clamping down on payments to Medicaid plans or cutting other state services.
The Milliman report found Florida could face added costs of up to $1.4 billion over the next ten years to fund Obamacare; Pennsylvania, $1.3 billion; and Texas, $1.1 billion. Tennessee, where all the state’s[SK1] Medicaid recipients are enrolled in managed care, could face added costs of $731 million over that time. Maryland will have to come up with $680 million, and Louisiana with $787 million.
Kevin Kane, president of the Pelican Institute for Public Policy, says he believes the tax will hurt Medicaid recipients in his state of Louisiana. “Costs are ultimately passed along, and in this case that could result in fewer resources for Louisiana’s Medicaid recipients,” Kane said. “Even Affordable Care Act supporters would have a hard time calling that a policy success.”
Grace-Marie Turner (firstname.lastname@example.org) is president of the Galen Institute.