Michigan would see a relatively minor impact on its fiscal position as a result of the new federal health care law, according to an analysis by the Legislature’s Senate Fiscal Agency.
The chief impact would come from an expansion of the Medicaid program, which would mean both new costs and savings to the state, the report said.
The new law could mean more challenges for the state’s two largest public hospitals. University Hospital in Ann Arbor and Hurley Hospital in Flint would likely benefit from a decline in uncompensated care costs but would see major cuts in federal and state aid amid rising demand for services.
The report was released as Michigan lawmakers returned to fiscal 2011 budget negotiations after a two-week recess.
The independent and nonpartisan Senate Fiscal Agency wrote the report to help legislators consider the potential impact of the new law as they craft future state budgets, said Steve Angelotti, a fiscal analyst with the Senate agency and one of two authors of the report.
“We anticipated we’d start getting questions about the changes from legislators,” Angelotti said. “It’s the medium-term changes that people are wondering about.”
The new law is expected to have little affect on the fiscal 2011 budget. Beginning in 2014, however, a planned expansion of Medicaid could mean both new costs and new savings for the state.
The Medicaid program will expand to cover all people under 133% of the federal poverty level. The federal government will cover 100% of the costs of the expansion through 2016.
In 2017, states will be required to begin chipping in, starting at 5% in 2017 and reaching 10% by 2020.
That could cost Michigan an additional $200 million from its general fund by 2020, according to Angelotti.
But the new cost could be offset by significant savings tied to other provisions in the expansion, he noted. For example, Michigan now spends roughly $280 million annually covering mental health services for adults who are not eligible for Medicaid.
Most of those patients will qualify for Medicaid under the new expansion, marking a sharp drop in the amount of services the state will be required to cover.
That could mean a savings of around $150 million, offsetting the expected $200 million in new Medicaid costs, Angelotti said.
“To say 10 years from now we could see a $50 million increase in cost is not a huge thing,” he said.
The new law features a number of other provisions expected to affect the state’s finances, but mostly for $50 million or under.
All states are also expected to face limited flexibility in their ability to make program cuts in Medicaid under the new law, the report noted.
Meanwhile, Michigan’s two largest safety-net hospitals will face their own wins and losses under the new law.
University Hospital in Ann Arbor, which is owned by the University of Michigan, and Hurley Hospital, which is owned by the city of Flint, are the state’s two largest public facilities and currently their combined uncompensated care costs total about $135 million.
Savings from a decline in uncompensated care could be offset by sharp cuts in Medicaid and Medicare disproportionate-share hospital payments, which are payments made to hospitals to help cover the cost of serving the poor.
“When you add more people to the Medicaid rolls, you’ll also likely see an increase in demand. Medicaid doesn’t pay as well as other insurers do. So there may be a shift from uncompensated care to under-compensated care,” Angelotti said.
“Hospitals tend to be very concerned about these things,” he added. “But frankly, until the program goes into place, we will have a hard time getting a fix on it.”
