Medicaid Actuary's Data Latest Evidence That Newly Insured Cost More Than Expected

The cost of caring for those newly insured by Medicaid expansion is proving much higher than the federal government estimated, according to a new report CMS released Friday.

The numbers from the CMS Office of the Actuary showed that adults who were newly eligible for benefits cost of the government $5517 on average in 2014, compared with an average of $4650 for adults who were not receiving benefits for the first time.

Not only were the newly eligible adults more costly to care for than the existing beneficiaries, but earlier estimates had pegged their costs at 1% less than those already on the Medicaid rolls.

So far, 29 states have expanded Medicaid under the Affordable Care Act (ACA), and Montana awaits a waiver from CMS on its expansion plan. The ACA envisioned all states extending benefits to those earning up to 138% of the federal poverty line. However, the 2012 US Supreme Court ruling that upheld the law allowed states to decide whether to expand Medicaid, and not all have.

The report released Friday may fuel arguments in remaining states, led by Republican governors or legislatures, that expansion is too costly. The actuary’s report found that total Medicaid spending grew 9.4% between 2013 and 2014 to $498.9 billion, and CMS projects it will reach $835 billion in 2023.

Under the terms of the ACA, the federal government pays all expansion costs until 2017, at which point states will pay 10% of the cost of expansion. Even though most of the tab is paid by the federal government, some states still see expansion as too costly, since state constitutions require budgets to be balanced annually. Many Republican lawmakers do not trust the federal government to keep up Medicaid funding in perpetuity.

CMS’ actuary pinned the higher-than-expected costs on beneficiaries having medical needs than had gone unaddressed for years. This is the same issue that has been blamed by insurers who have filed for premium increases for plans sold on the exchanges: many of those buying coverage under the ACA have not had insurance for years, if ever, and are finally getting care for pent-up medical conditions.

In many states, rate increases sought for plans on the exchanges are in the double digits, and some are above 20%. However, some experts believe that this pattern will eventually taper off as conditions are treated, and medical spending and rates will stabilize.