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Medicaid’s cost explosion requires immediate action

Medicaid’s cost explosion requires immediate action

Fred Birnbaum
December 7, 2020
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December 7, 2020

In the chaos of a contested presidential election and the ongoing COVID-19 pandemic, Idaho’s greatest financial threat has been able to creep by without much notice. 

Medicaid, created to provide health care coverage to the country’s most vulnerable — the disabled and low-income individuals and families — has seen a recent explosion of cost.

In Fiscal Year 2000, Medicaid spending accounted for 18% of Idaho’s total budget or $586 million. Fast forward to Fiscal Year 2010 and Medicaid spending jumped to $1.469 billion accounting, or 25% of the total state budget.

Even more worrisome, the already ballooning costs of Medicaid have been further exacerbated by the passage of Proposition 2 in 2018, which expanded Medicaid access to able-bodied adults. Medicaid expansion in Idaho went into effect in 2020 and the estimated costs have already rocketed well beyond forecast, with the Fiscal Year 2022 budget request allocating 34% of the total budget or $3.246 billion for Medicaid. 

If these trends continue, Medicaid will gobble up more than half of the overall budget within five years. 

What caused the cost of Medicaid to rise so quickly? 

The problem is two-fold and both are rooted in faulty forecasting — which underestimated use of services. 

Medicaid enrollment for Fiscal Year 2021 is 7% higher[efn_note]Milliman Report, Initial Draft of SFY 2021 and 2022 Expansion Budget Forecast. Prepared for State of Idaho Department of Health and Welfare. Page 2.[/efn_note] than previous projections but the real reason for the cost escalation is due to “higher medical and pharmacy benefit cost per patient per month in the emerging experience.”[efn_note]Ibid.[/efn_note] In plain English, Milliman, the consulting firm, got the forecast wrong and people given access to Medicaid used a lot more services than the forecasters expected. This is exactly what experience from other states that had previously expanded Medicaid would have led us to believe. Medicaid expansion forecasting has almost uniformly underestimated costs — Idaho was no exception. 

So who is accountable for this gross miscalculation?

Idaho’s Department of Health and Welfare (DHW) contracted with Milliman to forecast the cost of Medicaid expansion. Milliman’s cost projections turned out to be extremely inaccurate (meaning overly optimistic) so now DHW wants $660 million more from the Idaho Legislature and taxpayers for the first two years of expanded Medicaid. 

All hope is not lost, however. There are two ways to hold IDHW accountable and protect taxpayers from out-of-control spending. 

The first is straightforward: Repeal Medicaid expansion.

Another option would be to follow states like Washington, Wyoming and Ohio, where they are cutting or considering cuts to the fees paid Medicaid providers. 

The problem with the latter approach is that lawmakers often restore cuts. We already see this happen in Idaho with the yearly supplemental spending which pumps money back into Medicaid after the original appropriation is deemed insufficient. The pattern is a familiar one: Squeeze the highest level of funding that is politically palatable during the legislative session and then top off the appropriation with additional funding at the next session. When legislators arrive in January, they will be greeted with a Medicaid supplemental appropriation request that contains more than $100 million of federal money generously borrowed from our kids and grandkids.

Reforming Medicaid hasn’t worked and Idahoans cannot afford to wait until Medicaid expansion bursts our state budget. How much more evidence do we need? Idaho can’t afford to wait until we hit a financial wall. Excise the cancer of Medicaid expansion before it gobbles up more than half of the entire budget.

Idaho must repeal Medicaid expansion for able-bodied adults and return the program to protecting the most vulnerable.

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