[NYAPRS Enews] Study: Affordable Care Act will Save States $40 in MH Services Spending by 2019

[Harvey Rosenthal]

NYAPRS Note: According to a new study by the Urban Institute, states
will be able to save over $40 billion by the decade's end as Medicaid
expands to cover more Americans with mental health needs under the new
health reform act. This is expected to arise from federal share of
Medicaid replacing current 100% state dollars used to provide services
to individuals with mental health needs not currently covered by
Medicaid. The study projects that "When the Affordable Care Act is fully
implemented, Medicaid coverage is expected to increase from 12.4 to 23.3
percent of individuals with mental illness or substance abuse disorders,
and Medicaid's mental health spending is projected to rise by 49.7
percent."

 

 

Net Effects of the Affordable Care Act on State Budgets

Stan Dorn Matthew Buettgens The Urban Institute www.urban.org December
2010

 

http://www.firstfocus.net/sites/default/files/StateCost_Dorn_0.pdf

 

 

Introduction and Key Findings

The Patient Protection and Affordable Care Act (Affordable Care Act or
ACA) will affect state budgets in many ways. State Medicaid spending on
low-income adults will rise, for two reasons. First, the Affordable Care
Act is expected to increase enrollment among individuals who currently
qualify but have not yet signed up for Medicaid, enrollment for which
states must pay their standard share of Medicaid expenses. Second, the
legislation requires Medicaid to cover all adults with incomes at or
below 133 percent of the federal poverty level (FPL). While the federal
government will pay 100 percent of all health care costs for newly
eligible adults during 2014-2016, states will begin paying some of these
costs in 2017, with the state share gradually rising to 10 percent in
2020 and thereafter. Taking into account both of these factors, prior
analyses by the Urban Institute have concluded that, depending on
whether participation levels resemble historical averages, as
anticipated by the Congressional Budget Office, or significantly exceed
those levels, state costs for Medicaid adults with incomes at or below
133 percent of FPL will rise by between $21.1 billion and $43.2 billion
during 2014-2019.

 

To place these costs in context, this paper analyzes potential savings
states can achieve under the Affordable Care Act. In sum, we find the
following results for 2014-2019: By eliminating optional Medicaid
coverage for adults over 133 percent of FPL, thus shifting them to
federally-funded subsidies in the exchange, states can save between
$21.3 billion and $28.2 billion.

By replacing state and local spending on uncompensated care with federal
Medicaid dollars, states and localities can save between $42.6 billion
and $85.1 billion. By replacing state and local spending on mental
health services with federal Medicaid dollars, states and localities can
save between $19.9 billion and $39.7 billion. A worst-case scenario will
thus see states realizing net budgetary savings of $40.6 billion during
2014-2019. In a best-case scenario, those gains will reach $131.9
billion.  

 

State fiscal effects not considered here include savings on the
Children's Health Insurance Program (CHIP) when federal matching rates
increase by 23 percentage points in 2016 (and when federal allotments
may end, depending on future Congressional decisions); potential savings
from new options to combine Medicare and Medicaid dollars into
integrated care systems serving individuals who qualify for both
programs; potential increases in state revenue that result from higher
wages; and effects on state and local costs to provide public employees
and retirees with health coverage.    

Of course, effects will vary by state. Even if states as a whole gain
under the Affordable Care Act, some may lose. And state policy choices
will go a long way towards influencing the fiscal impact of the federal
legislation. Already, a handful of states have turned down available
federal funding, while others have vigorously sought multiple federal
grants. State choices will become even more consequential once the major
provisions of the ACA become effective in 2014. For example, a state
will spend more if it chooses to continue paying Medicare-level
reimbursement rates to Medicaid's primary care providers after federal
funding targeted to this purpose ends in 2015; a state will spend less
if its Medicaid program makes it difficult for eligible individuals to
obtain and retain coverage; and a state will experience increased fiscal
gains if it aggressively substitutes newly available federal dollars for
current state and local health care spending.

No doubt, states will continue to vary in both their objective
conditions and their policy choices. 

Nevertheless, most states will be able to implement the Affordable Care
Act in ways that help balance rather than burden state budgets..... 

 

Increased Federal Support For Mental Health Services

In Fiscal Year 2008, state mental health agencies spent an estimated
$36.8 billion. Of this amount, 45.4 percent, or $16.7 billion,
represented state and local costs outside Medicaid. Medicaid itself paid
for 46 percent of state mental health services, or $16.9 billion. Other
funds were provided by Medicare, federal block grants, and additional
sources. 

The Affordable Care Act's expansion of Medicaid coverage to reach adults
with incomes up to 133 percent of FPL will have a major impact on these
state-administered systems of care. Among the adults served by state
mental health agencies, 79 percent are either unemployed or outside the 

labor force. Nevertheless, 43 percent of consumers served by these
agencies have no Medicaid coverage.  

When the Affordable Care Act is fully implemented, Medicaid coverage is
expected to increase from 12.4 to 23.3 percent of individuals with
mental illness or substance abuse disorders, and Medicaid's mental
health spending is projected to rise by 49.7 percent.

If the latter increase had applied to state mental health agencies in FY
2008, their Medicaid revenue would have grown by $8.4 billion. Trended
forward based on per capita changes in state and local health spending
projected by the CMS Office of the Actuary, the increased Medicaid
revenue would total $82.7 billion for 2014-2019. Of this amount, $79.4
billion would represent new federal dollars, based on the average
federal matching percentage projected for newly eligible adults.

Notwithstanding past patterns through which state policymakers have
strategically used increased Medicaid dollars to reduce state budgetary
commitments, one should not overstate the extent to which Medicaid
dollars can substitute for other resources. Many people served by state
mental health agencies will continue to be uninsured. Some will have a
connection to the criminal justice system that precludes eligibility for
assistance, for example, and others may suffer from cognitive or other
impairments that complicate Medicaid enrollment. Further, some important
services are not easily reimbursable through Medicaid. Examples include
care provided by Institutions for Mental Disease, which Medicaid
excludes, and certain types of substance abuse treatment and residential
support. And some of these new Medicaid dollars may be used to address
unmet needs among the mentally ill, which are likely to grow in the wake
of today's state budget shortfalls and the resulting cuts to
state-funded mental health services.

Taking these factors into account, if we assume that only a quarter of
increased Medicaid reimbursement will substitute for state and local
spending, state and local savings in this area would amount to $19.9
billion during 2014-2019. If half of these Medicaid dollars substitute
for state and local spending, savings will reach $39.7 billion.

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