Arise Legislative Update

Alabama’s Medicaid program is on course for a “train wreck” next year, State Health Officer Don Williamson told legislators Tuesday, and a Sept. 18 vote will determine whether that wreck is controlled or uncontrolled. Williamson, who chairs Gov. Robert Bentley’s Medicaid transition team, said Medicaid risks numerous lawsuits and the loss of all federal funding if voters reject a proposed constitutional amendment in September. Even if it passes, the budget will remain tight, Williamson said.

Next year’s $1.7 billion General Fund budget assumes voter approval of the amendment, which would transfer $437.4 million over three years from the Alabama Trust Fund to the General Fund. A “no” vote would blow a huge hole in that budget and leave Medicaid with a $100 million shortfall less than two weeks before fiscal year (FY) 2013 begins, Williamson said. “If it fails, we will go into a 10-day ‘almost shutdown’ of Medicaid,” he said.

Alabama’s options to close that shortfall without new revenues would be limited, Williamson told lawmakers during Tuesday’s meeting of the Permanent Joint Legislative Committee on Medicaid Policy. Eliminating all optional services – those the federal government does not require the state’s Medicaid program to offer – would save only $83 million, he said. But $70 million of that amount would come from ending patients’ prescription drug coverage, which Williamson said is unlikely.

One of the state’s few remaining choices would be to change reimbursement payments to hospitals and nursing homes, Williamson said. But he warned that move could erode Alabama’s provider taxes, force closures of nursing homes and rural hospitals, and “melt down” the state’s Medicaid funding system entirely. “It needs to be a controlled redesign, not a cataclysmic redesign,” Williamson said.

The Medicaid expansion decision

Voters’ decision in September will be the prelude to an even bigger choice for Alabama in coming years: whether to accept or reject funds to expand Medicaid coverage for low-income adults under the Affordable Care Act (ACA) starting in 2014. The U.S. Supreme Court upheld the ACA’s constitutionality last month but ruled that states must have the option to reject the law’s Medicaid expansion without jeopardizing existing Medicaid funds.

The expansion would cover about 420,000 low-income Alabamians, Williamson said, with the federal government picking up the entire cost for the first three years. Alabama’s share of the cost then would increase gradually until it reached 10 percent starting in 2020. If Alabama agrees to expand Medicaid, Williamson said, the state’s total investment of $406 million to $440 million over the next six years would generate $10.1 billion to $10.8 billion in new money for the state economy. “That may turn over enough and generate enough tax dollars to pay for that expansion,” Williamson said.

If Alabama opts out of the Medicaid expansion, hundreds of thousands of low-income residents could be left out of the ACA’s efforts to make affordable health coverage available to everyone who wants it. The ACA’s expansion would offer Medicaid coverage to all adults with incomes up to 133 percent of the federal poverty level. People with incomes above 100 percent of the poverty level will qualify for federal subsidies to buy insurance through a health insurance exchange. 

Alabama now offers Medicaid coverage for parents with incomes up to only 11 percent of the poverty level, while childless adults are ineligible regardless of their incomes. Rejection of the Medicaid expansion would leave uninsured Alabama adults with incomes between 11 percent and 100 percent of the poverty level with few coverage options, Williamson said.

‘Medicaid’s going to expand even if we don’t expand’

Alabama’s Medicaid costs will increase in coming years even without the expansion, Williamson said. The state will spend an additional $64 million over the next six years to cover new enrollees who meet current eligibility standards, Williamson said. The ACA also requires Medicaid, which pays providers an average of about 79 percent of Medicare rates, to match Medicare’s payment schedule in 2013 and 2014, Williamson said. The federal government will cover the entire increase for those years, but states later may have to begin picking up a share. “Medicaid’s going to expand even if we don’t expand,” said Rep. Greg Wren, R-Montgomery, who chairs the Medicaid policy committee. 

Many lawmakers said they worry that Medicaid will unable to keep pace with growing costs in coming years. Even without the Medicaid expansion, the program’s total state and federal spending is expected to increase from $6 billion this year to $9 billion by FY 2019, the Legislative Fiscal Office estimates. Rep. Jim McClendon, R-Springville, who chairs the House Health Committee, said Medicaid needs to find a way to become financially sustainable. “If it weren’t for having to pay for it, we could have free health care for everybody,” McClendon said. 

Other legislators said the Medicaid expansion is too good of a deal for Alabama to pass up. Rep. Rod Scott, D-Fairfield, called the expansion “one of the biggest economic development tools that has been introduced in this country.” Sen. Billy Beasley, D-Clayton, argued that better health care access would keep Alabama workers healthier and more productive.

Sen. Hank Sanders, D-Selma, said the state’s Medicaid expansion decision is “a matter of priorities.” As a child, Sanders said, he went to the doctor only once, and he knew many children with serious illnesses whose families deferred treatment because it was too expensive. “There are many people without insurance risking their lives,” Sanders said. “Health care is more fundamental than education. Education improves lives. Health care sustains lives.”

Chris Sanders

Policy Analyst

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