New study helps build the case for expanding Medi-Cal

After pushing to cut Medi-Cal spending in each of his first two years in office, Gov. Jerry Brown now has to decide whether to seek to expand it by billions of dollars -- largely, but not entirely, on Washington’s dime. A new report from researchers at UCLA and UC Berkeley suggests that the expansion might actually pay for itself through higher tax revenue and lower spending in other state programs.

The researchers’ cost estimates are just that, estimates, so there’s no guarantee that things would work out as well for the state as their model suggests. But their study helps buttress the argument of those who want to expand Medi-Cal as a way to provide health coverage to millions of uninsured, lower-income Californians.

That’s because the discussion of healthcare programs invariably revolves around the cost of providing the insurance or the care, not how those costs compare with the savings realized by other programs and the potential gains to the economy. Yes, it costs a significant amount of money to insure the uninsured. But that spending yields a benefit that needs to be recognized and factored into the debate.

The 2010 Patient Protection and Affordable Care Act requires states to extend Medicaid coverage to all Americans earning up to 138% of the federal poverty line, starting in 2014. That’s a significant expansion for many states, which offer coverage only to families with young children and incomes less than 100% of the poverty line. The federal government will pay 100% of the medical costs and 50% of the administrative costs of the newly eligible recipients for the first three years; after that, it has pledged to pay at least 90% of the medical costs.

The Supreme Court ruled last year that the federal government can’t punish states that don’t expand their Medicaid programs. But the Obama administration later announced that states would receive extra aid for newly eligible recipients only if they fully complied with the law.

The UCLA-UC Berkeley report estimates that full compliance with the act would make 1.4 million Californians eligible for Medi-Cal, although it projects that no more than 910,000 would sign up. New outreach efforts, simplified enrollment and the new federal requirement to carry insurance would also persuade between a quarter-million and a half-million uninsured Californians who are already eligible for coverage to sign up, the researchers predicted.

Despite billions of dollars in new federal subsidies, the state would still face increased Medi-Cal costs of up to $471 million annually in the first three years, the report estimates. Those costs could go as high as $788 million in 2019. Significantly, however, most of those dollars would be spent covering low-income Californians who would be eligible even if the state doesn’t expand Medi-Cal.

In other words, Medi-Cal rolls will be expanding significantly regardless of whether the state changes its eligibility rules.

On the other side of the ledger, the researchers cited a number of hard-to-quantify benefits seen from extending insurance coverage to more people, including increased use of preventive care, better results in school, and reduced absenteeism and higher productivity at work. The additional federal and state dollars flowing into the healthcare industry will also generate a considerable number of jobs, they said.

The new federal dollars alone will generate $111 million to $242 million annually in state tax revenue, the researchers estimated. That revenue would offset 40% to 60% of the state’s costs in the first year, with the share eventually dropping to 30% to 40%.

In addition, the report contends that expanding Medi-Cal would lead to significant savings in other state programs, including mental health services and prisons. Although it would take a few years for the savings to be realized, the researchers argue, they could be in the hundreds of millions of dollars -- more than enough to offset the cost of those newly eligible for Medi-Cal.

Suggesting that the newly eligible Medi-Cal recipients won’t impose any net cost on the state seems too good to be true; it reminds me of the claims from some conservatives that income-tax cuts pay for themselves by spurring economic growth. But just as policymakers shouldn’t ignore how tax cuts change behavior and incentives, nor should they overlook the economic and budgetary benefits of covering more of the uninsured and improving public health.

Anthony Wright of Health Access California, an advocacy group for healthcare consumers, said the study “shows that for a small investment, California gets a big benefit from the Medicaid expansion -- in coverage and care for Californians, in federal dollars into our health system, our economy, and job creation, and even in state savings and new tax revenue.� He added, “The costs are low compared with the benefits, of what California already spends in Medicaid, and the share of what the federal government is picking up.�

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