Estimated State Budget Impact of an Oklahoma SoonerCare Expansion

By Deborah Bachrach, Partner | April Grady, Senior Manager | Laura Braslow, Director

Editor's note: In 2012, the United States Supreme Court ruled that the Medicaid expansion authorized by the Affordable Care Act (ACA) was optional. That is, each state could decide whether or not to use its Medicaid program to cover all adults with incomes below 138% of the Federal Poverty Level (FPL). States that opt to cover the new adult group receive an enhanced federal matching rate starting at 100% in 2014 through 2016 and then declining annually and leveling off at 90% in 2020 and beyond.

In a new report for the Oklahoma Hospital Association, summarized below, Manatt Health examines the budget implications of using SoonerCare (Oklahoma's Medicaid program) to cover the new adult group. The report focuses on the period 2017–2021, during which new adult group costs are expected to grow and then stabilize. It also provides 10-year estimates in the Appendix. Click here to download the full report.

___________________________________

Introduction

If Oklahoma takes up the option of covering adults with incomes up to 138% FPL under SoonerCare, it is projected that 272,000 individuals would gain coverage in the new adult group during 2019 (the first calendar year of full enrollment after a ramp-up period). Prior to applying any savings or revenue offsets, the five-year total costs associated with extending coverage to the new group are an estimated $8.3 billion, of which the federal government would finance $7.5 billion and Oklahoma would cover $739 million.

It is anticipated, however, that the State would be able to offset a considerable portion of costs by accessing enhanced federal match for some current SoonerCare populations and by replacing State general fund spending on health programs for the uninsured with federal Medicaid funds. In addition, as hospitals' revenues increase with the number of people covered, Oklahoma could expect to see higher State revenues from its existing hospital assessment. Enrollee premium contributions also could provide a revenue source.

From 2017 to 2021, it is projected that Oklahoma could see $491 million in savings and $52 million in new revenues, bringing the net State costs of covering the new adult group to $196 million during the five-year period. (These figures exclude potential savings under a recent change in federal policy that could provide tens of millions in additional federal matching funds annually for individuals served by Indian Health Service and Tribal facilities. They also exclude broader economic impacts and reductions in uncompensated care, both of which are important additional areas of analysis for Oklahoma as it contemplates coverage for the new adult group.)

Background

More than 1 million Oklahomans were enrolled in coverage funded by Medicaid and the State Children's Health Insurance Program (CHIP) for some portion of the State fiscal year (SFY) 2015, at a total cost of $5.1 billion. If Oklahoma were to cover the new adult group under SoonerCare, the State not only would extend coverage to a new population of individuals but also provide access to a full benefit package for those whose current coverage is more limited.

Under the ACA, the federal government is obligated to pay 100% of the 2014–2016 costs of individuals in the new adult group, phasing down to 90% in 2020 and beyond. Today, the federal medical assistance percentage (FMAP) that applies to most Medicaid spending in Oklahoma is 61%, with some expenditures, such as services for women needing breast or cervical cancer treatment, receiving a higher federal share.

Costs

In estimating the costs of providing SoonerCare coverage to the new adult group beginning in 2017, we factor in service costs for the new adult group, service costs associated with the so-called woodwork or welcome mat population, and administrative costs.

1. Service costs for the new adult group

If the State were to take up the ACA option, an estimated 272,000 individuals would gain coverage in the new adult group on average during 2019, the first calendar year of full enrollment after an 18-month ramp-up period. Estimated costs to the State of providing services to the new adult group are $48 million in 2017 and total $595 million through 2021, prior to applying any savings or offsets.

2. Service costs for the woodwork population

In addition to covering those who were previously ineligible for SoonerCare, extending coverage to the new adult group may encourage currently eligible but unenrolled individuals to take up coverage, a phenomenon referred to as the woodwork or welcome mat effect. State costs of services associated with the woodwork effect are estimated at $13 million in 2017 and $74 million through 2021.

3. Administrative costs

Oklahoma should expect to see increased administrative costs as SoonerCare grows. For coverage extended to the new adult group, these costs are estimated at $9 million in 2017 and $70 million through 2021.

Savings

Oklahoma can expect savings in two categories:

1. Savings from accessing enhanced federal matching funds for existing SoonerCare populations

Oklahoma can expect to see savings as certain currently eligible SoonerCare populations move from eligibility categories with a regular federal matching rate to the new adult group for which the State may draw down an enhanced match. These populations include:

• Pregnant women. State savings associated with extending coverage under SoonerCare to the new adult group are estimated at $129 million for the pregnant women group from 2017 to 2021.
• Individuals with disabilities. State savings associated with extending coverage under SoonerCare are estimated at $75 million for the disabled adult group from 2017 to 2021.
• Section 1115 waiver coverage that does not provide full Medicaid benefits. If the State extends coverage to the new adult group, current Insure Oklahoma enrollees should qualify as newly eligible adults, and the State is projected to save an estimated $84 million from 2017 to 2021 by obtaining enhanced FMAP for these individuals.
• Breast and cervical cancer group. If Oklahoma extends coverage to the new adult group, State savings are estimated at $11 million for these women from 2017 to 2021.
• Family planning group. If Oklahoma extends coverage to the new adult group, State savings are estimated at $1 million from 2017 to 2021.

2. Savings from replacing State general funds with federal Medicaid funds for healthcare programs for uninsured, low-income adults

Oklahoma currently uses State-only funds to support health services for the uninsured, including behavioral health programs, immunizations and other public health services, and inpatient hospital care for State prison inmates. If Oklahoma opts to cover the new adult group under SoonerCare, many of the individuals receiving these services could enroll, permitting the State to shift some current general fund spending to SoonerCare. As a result, the availability of federal matching funds would significantly reduce the amount of State-only spending required to provide existing services:

• Mental health and substance abuse. Oklahoma spends $46 million in State-only dollars on mental health and substance abuse services for uninsured, low-income adults. It is estimated that the State will be able to reduce this spending by 40% in 2017, increasing to 80% in 2020 and beyond as eligible individuals enroll in SoonerCare, resulting in State savings of $151 million through 2021.
• Public health. Oklahoma spends an estimated $4 million on public health services identified as potentially matchable if SoonerCare coverage is extended to the new adult group. It is estimated that the State will be able to reduce this spending by 40% in 2017, increasing to 80% in 2020 and beyond, resulting in State savings of $15 million through 2021.
• Corrections. In 2015, Oklahoma spent $5 million on inpatient hospital admissions for inmates who do not currently qualify for SoonerCare. It is estimated that the State will be able to reduce this spending by 80% in 2017, increasing to 90% in 2018 and beyond, resulting in State savings of $24 million through 2021. Counties and other local governments may realize additional savings if they use their own funds to cover similar services for low-income, uninsured adults.

Revenue Gains

There are two areas in which extending SoonerCare coverage to the new adult group could generate additional revenues:

1. We assume Oklahoma would maintain its current 3% assessment on hospital revenues. As hospital revenues increase with the number of people covered, so would the amount generated by the assessment. We estimate $7 million in new State revenues from the hospital assessment in 2017 and $51 million through 2021.

2. Based on the State's decision to impose premiums on individuals participating in its Insure Oklahoma waiver, we assume the State will seek a waiver to obligate individuals with incomes above 100% FPL to pay premiums equal to 2% of their household incomes. Enrollee premiums are estimated to generate $2 million in State revenues through 2021. This amount is relatively small given that most of the premiums will be credited to the federal government, which is covering at least 90% of the costs of coverage for this population.

Conclusion

From 2017 to 2021, net State costs of extending coverage to the new adult group in Oklahoma are estimated at $196 million. If an additional offset is included to reflect the increased availability of 100% federal funding for current enrollees who receive SoonerCare services through Indian Health providers, the five-year net cost is an estimated $95 million.

State savings are projected to exceed State costs in 2017. In 2020, when the enhanced federal match for newly eligible individuals levels off at 90%, net State costs are an estimated $77 million (or $55 million with an Indian Health offset assumption). During the same five-year period, it's estimated that the State will bring in an additional $7.8 billion in federal dollars.

Although not addressed in the report, Oklahoma also will realize broader economic impacts and reductions in uncompensated care. Studies from states that have expanded Medicaid show that expansion creates jobs, brings in new federal dollars that spur the economy and increases state and local tax revenue. In addition, providers can expect lower uncompensated care costs as the number of uninsured individuals declines.