In March 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA) that will require health insurance for all individuals when it takes effect on January 1, 2014.  States will be responsible for implementing some major changes outlined in the ACA which include establishing and operating state health insurance exchanges and expanding Medicaid coverage to an estimated 16 million Americans who will be eligible under the new guidelines.  The new Medicaid eligibility guidelines have expanded to include those under age 65 with incomes up to and including 133 percent of the federal poverty level, with no consideration for assets.

The federal government is providing extra funding for states to administer this expansion of health care.  Between 2014 and 2016, the federal government will be paying 100 percent of the cost of all newly eligible Medicaid recipients.  Between 2017 and 2020 federal funding for health care reform will gradually step down to 90 percent.  After 2020 the states are required to provide the additional 10 percent funding for mandated health services to the newly expanded population.

Should the state be concerned about rising costs associated with the expansion of Medicaid?  According to a Senate Fiscal Agency report, through 2020, the Medicaid expansion may actually save the state money; many of the individuals that are currently treated in the state’s Community Mental Health non-Medicaid budget will be covered by Medicaid beginning in 2014.  Medicaid will be heavily subsidized by the federal government through 2020, freeing up general fund dollars.  This, combined with an increased match rate for the state MI-Child program, is estimated to save the state over $160 million of general-fund/general-purpose (GF/GP) annually.  After 2020, when the state is responsible for 10 percent of the cost of the expanded Medicaid population, the Senate Fiscal Agency estimates that the state will spend approximately $200 million annually in GF/GP dollars.[i]

Though it does not require dollar outlay, the maintenance of effort requirement is a major obstacle that has and will continue to hinder Michigan’s ability to reduce Medicaid spending or growth in spending.  The requirement was first instituted with the American Recovery and Reinvestment Act (ARRA) in 2008 and was extended with the ACA.  The maintenance of effort requirements in the ARRA stipulated that states must not further restrict eligibility standards, methodologies, or procedures under their Medicaid program beyond what was in place on July 1, 2008.  The ACA extended the ARRA maintenance of effort requirement to those standards, methodologies, and procedures in effect on March 23, 2010 through the time when states’ health insurance exchanges are operational (the deadline is January 2014).  Eligibility levels for all children must be maintained through 2019.  Should states violate the maintenance of effort requirements they would lose all federal Medicaid funding.  One exception to the maintenance of effort is that benefits to non-disabled, non-pregnant childless adults with incomes greater than 133 percent of the FPL may be eliminated or reduced if the state shows proof of a certified budget deficit.   Because the income cutoff for this population is less than 133 percent in Michigan, the state cannot qualify for these eligibility changes.

The maintenance of effort requirements do not, however, apply to optional benefits.  States also have some flexibility in adopting premiums for new coverage and for executing or including inflation-based adjustments to existing premiums.  Additionally, if a state makes available a higher cost health plan it can charge a higher premium for those that elect that coverage but not to those to whom the higher cost plan is required.  Increases in copayments are not considered a violation of the maintenance of effort.  States can also restrict services in benefit areas such as long-term care as long as they do not impact eligibility.  As with all actions that impact beneficiaries and services, policymakers need to consider more than just the short-term cost savings, but also the livelihoods of those that rely on Medicaid.  More information about cost containment measures and the ACA can be found in CRC Report 376.

[i] Steve Angelotti and David Fosdick. “Fiscal Analysis of the Federal Health Reform Legislation.” Issue Paper: Senate Fiscal Agency. April 2010.

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