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Oregon Expects to Save $79 Million by Expanding Medicaid

Legislation on the Medicaid expansion – House Bill 2859 and House Bill 2091 come before the House Health Committee today. Even after the federal government stops fully funding the expansion, the costs to the general fund will be offset by new tax revenues and reimbursements in other areas
March 8, 2013


March 8, 2013 — If Oregon chooses to comply with the Affordable Care Act to expand Medicaid coverage to 260,000 of the poorest residents next year, the state will save $79 million over seven years, according to an economist at Oregon Health & Science University.

“The money doesn’t fall into a hole,” said economist Peter Graven. “If Oregon says no, they just don’t get the money.”

Gov. John Kitzhaber announced in November that he wants the state to expand coverage, and his budget reflects that change. All that awaits now is the Legislature’s approval.

The House Health Committee will hear House Bill 2859 and House Bill 2091 today related to the Medicaid expansion.. The bills are expected to change significantly before final passage, but the hearing will start the process toward approval.

While some states with Republican governors bemoan the cost of the expansion to state governments, the money Oregon expects to gain from the increase in federal dollars for current enrollees will be nearly double the general fund money that the state would have to pay through 2020 even after the federal match drops below 100 percent.

The federal government will inject $11.3 billion into the state between now and 2020, $10.2 billion to provide new coverage to 260,000 people, and another $1.1 billion that’s expected from higher reimbursement for people already on the Oregon Health Plan.

Graven said the state will also see $350 million by 2020 in new tax revenues. About 3 percent of the federal money being spent will end up back in Oregon’s coffers as taxes.

“A bunch of that is coming from personal income, and another smaller piece is $30 million from corporate taxes,” Graven said. “It’s impossible to spend billions of dollars in the state, and the state not to get some of that money back.”

Oregon could be among the states with the sharpest gains in tax revenues from the Affordable Care Act since it’s so reliant on the personal income tax compared to states like Texas and Washington that rely on sales taxes. More money to providers means more money for taxable salaries and the healthcare industry employing more people, who in turn spend money and grow commerce.

“If you’re going to spend a whole lot of money in healthcare, it’s going to the provider,” Graven explained. “They still have to spend the money, paying the taxes.”

The budget impacts were compiled in a report that the Oregon Health Authority received from OHSU and the State Health Access Data Assistance Center, a nonprofit group in Minnesota. Funding came from the Robert Wood Johnson Foundation.

The report says the state is expected to spend $590 million in general funds for those later years when the federal share drops, but the state will gain $1.1 billion over the same time when the federal government picks up the tab for 65,000 people who are currently enrolled in the basic Oregon Health Plan Standard.

The Oregon Health Authority argues that the 65,000 people who currently have the Oregon Health Plan Standard will count as new enrollees, since their current coverage is less robust than what the new enrollees will be getting.

“We believe that it does,” said Gretchen Morley, the director of the Oregon Health Policy Commission, a subdivision of the Oregon Health Authority. “We’re working with the federal government to get approval for it.”

The state currently pays one-third of the benefit for these Medicaid members, but with approval from the Centers for Medicare & Medicaid Services, the state will be reimbursed at 100 percent of its cost.

Graven also estimated the state will save $130 million over seven years that it would otherwise expect to spend on the Oregon Employees Benefit Board and the Public Employees Benefit Board. This savings is generated from enrolling people in Medicaid who would otherwise be uninsured and unable to pay for their own healthcare.

He said his estimates were based on a conservative 1.7 percent annual decline in the expected growth of healthcare. He said other predictions have this savings as high as 25 percent.

The state will also save $204 million through 2020 in mental healthcare and addictions treatment now given to indigent people who will join the Oregon Health Plan. Kitzhaber’s budget for the current biennium rolls this money back into the system to boost funding for community mental health.

Oregon has 20,000 people who are below the poverty line and eligible for the Oregon Health Plan but shut out by the lottery system, which hands out healthcare capriciously to the lucky.

The lottery system will go away. In its place, everyone who earns below 138 percent of the federal poverty level — $15,900 for an individual or $32,500 for a family of four — will receive free health coverage automatically.

“This would catch anyone who’s not currently insured,” Morley said.

Next year, the Oregon Health Plan Standard will disappear, and everyone will be put on the Oregon Health Plan Plus, and their benefits will be expanded to include dental and rehabilitative care.

CMS requires rehabilitative care after an injury or loss of function for all members. Better dental care is only required for 19- and 20-year-olds, but the Oregon Health Authority decided to give that coverage to everyone. Children already receive that level of dental coverage.

“It will be a lot easier than having to administer so many different packages,” said Dr. Jeanine Smith, the administrator of the Office of Oregon Health Policy & Research. “It would be nice to cover dental for everybody.”