May 26, 2010 DHH Secretary Releases State Data on Costs of Federal Health Reform in Response to National Report Issued TodayKaiser Family Foundation Study a Good Start, but is Limited in Scope and Does Not Account for Real Policy Costs States Must Consider

BATON ROUGE, May 26, 2010 - Federal health care reform could cost Louisiana taxpayers in excess of $6 billion over 10 years once implemented, Louisiana Department of Health Secretary Alan Levine announced today in response to a report by Kaiser’s Commission on Medicaid and the Uninsured.  The Kaiser report, intended to provide an estimate of costs for states, limited its analysis to the costs of the expansion of Medicaid, and did not provide an analysis of additional costs that may be imposed.

The Kaiser report asserted that the federal health care reform expansion of Medicaid will cost Louisiana an additional $536 million over a five-year period. Both Kaiser’s and the state’s estimates of the enrollment numbers are strikingly close (Kaiser estimates enrollment expansion of 507,952 by 2019, while Louisiana estimates 512,653), but they differ on the costs. In estimating costs for the enrollment expansion, Kaiser uses national benchmark numbers, while Louisiana’s estimates are based on actual costs and growth trends experienced in the state. 

During the past two months, LDH has been working with independent actuaries to estimate the cost of reform, what policy changes will need to be made within the program and the costs related to those changes.  For the same time period (2014-2019) covered by the Kaiser report, the state is estimating a cost of up to $2.7 billion of additional state general funds needed.  This estimate includes enrollment as well as other costs not contemplated by Kaiser in its report. It also does not include an estimated increase of 75,000 children expected to move from private or employee-sponsored insurance as their parents move to the less costly Medicaid options.

“We have a great appreciation for the work of the Kaiser Foundation, and this report is a good start,” Secretary Levine said.  “In fact, the report is remarkably close to our projections on the number of people who will enroll in Medicaid. However, when it comes to predicting the actual cost to Louisiana taxpayers, the Kaiser analysis, by the researchers’ own admission, does not paint a complete picture of the new burdens placed on states by the unfunded federal mandates built into reform.” 

Several factors that must be considered include:

Provider rate increases. Federal reform pays for the cost of increasing Medicaid rates for primary care providers for two years, beginning in 2013.  The report does not address the cost of continuing that rate increase beyond the period funded.  It also does not anticipate necessary rate adjustments for specialists, whom primary care physicians must rely upon to ensure continuity of care and access.

Hospital rate increases. With an increase in the Medicaid enrollment of more than 500,000 people, the percentage of Louisianans covered by Medicaid will increase to nearly 40 percent, with that number increasing even more after 2019. The state’s current mechanisms for paying hospitals will be inadequate with this number of people being covered by Medicaid. Additionally, even as estimated by federal actuaries, hospitals will likely close if Medicare rates are reduced as planned in the reform package (Medicare faces a $500 billion cut).  With the reduction in Medicare rates, and with Medicaid paying below cost rates as it does in every state, Louisiana’s hospitals will not be able to sustain these rates and remain open. To protect these hospitals, the state will be required to find additional dollars to supplement rates. These costs have not been estimated in the Kaiser report.
Administrative costs. As one example, Louisiana will need to hire at least 325 new enrollment workers beginning next year. Currently, Louisiana employs one enrollment worker per 1,600 enrollees (one of the most efficient staffing patterns in the nation). Additionally, in order to comply with the exchange requirements, a new enrollment system will need to be purchased, which will cost at least $10 million in state funds.  These costs are not considered in the Kaiser report.

Utilization rates. The Kaiser report is static in terms of utilization. As provider rates are increased, and utilization of services increases, there are costs associated with this increase that are not estimated in the report.
Disproportionate Share Hospital rates. Major reductions in DSH will be imposed on the state, but at this time, it is not possible to estimate those exact reductions.  The reform package provides the secretary of Health and Human Services with the authority to unilaterally draft rules related to the new distribution of DSH. High DSH states, like Louisiana, face significant risk of major reductions – even beyond the $200 million reduction Louisiana faces this coming year due to the DSH Audit Rule. These changes to DSH will have an enormous, if not defined, impact on our system of public hospitals and mental health institutions.
Finally, LDH disputes any conclusion that the impact of reform on states is “relatively small.”  To be sure, the impact is significant, particularly given the difficulty faced in the current budget climate.

“It is not appropriate to ignore the real policy implications faced by the states,” said Sec. Levine. “To simply enroll more people in a fundamentally broken system where doctors cannot even take care of the people we have today, where hospitals are openly struggling to maintain services at the rates they are currently paid, and where Legislatures are faced with having to make choices between funding the ever-growing costs of Medicaid and other priorities like education, roads and public safety,  we simply don’t know how anyone can say with a straight face that the cost impact is ‘relatively small.’ It is relatively large, and our governor and Legislature have the right to understand what the potential implications are.”

The Louisiana Department of Health strives to protect and promote health statewide and to ensure access to medical, preventive and rehabilitative services for all state citizens. To learn more about LDH, visit http://www.dhh.louisiana.gov.

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