Health care law will cost Indiana $3.6 billion over 10 years, actuary says

An actuary hired by Republican Gov. Mitch Daniels’ administration presented the results of its study of the new health care law Wednesday at a State Budget Committee meeting in Indianapolis. The estimate is $1.3 billion higher than the same firm projected in December, when studying an earlier draft of the Democratic-backed reforms.

Indianapolis-based Milliman Inc., the actuary for the state’s Family and Social Services Administration, analyzed the cost of expanding Medicaid eligibility to 133 percent of the federal poverty level plus a 5 percent income disregard – about $30,400 for a family of four.

According to the actuary’s analysis, 413,000 adults, including 176,000 who are already insured, and 109,000 children, including 72,000 who are already insured, will be added to the state’s Medicaid rolls.

That would increase the number of Hoosiers on Medicaid from 16.7 percent of the state’s population to 24.4 percent, and it would come at a cost of about $2.4 billion over the next 10 years.

Of that, $483 million comes from transferring those who are currently insured through the Healthy Indiana Plan, which will end, onto Medicaid. Another $576 million comes as about 23,100 blind and disabled Hoosiers who are now only partially covered become eligible for Medicaid. And $15 million results from upping the maximum age for foster children to remain on Medicaid from 21 to 26.

The actuary anticipates other costs, as well. Its financial analysis suggested Indiana could be forced to spend $832 million to increase the reimbursement rates the state pays doctors who treat Medicaid patients.

Currently, when treating Medicaid patients, Indiana doctors receive between 60 and 65 percent of what they would get when treating Medicare patients. The actuary projects that rate would need to increase to about 80 percent, or doctors might refuse to see those on Medicaid.

The analysis also predicts Indiana would have to spend $303 million on new administrative costs, such as setting up a state-run insurance exchange, and would also lose $298 million in drug rebates. that money will now go to the federal government, rather than the states.

The actuary’s analysis includes some cost savings for Indiana, as well. The federal government will increase its share of Children’s Health Insurance Program, shifting $195 million in costs from the state’s budget to the federal government.

Cost shifts on a breast and cervical cancer program from the state to the federal government will save Indiana $14 million, while the federal government will also pay for some of the additional care the state provides pregnant women, netting another $47 million for the state.

The tone during Wednesday’s presentation was cordial, but lawmakers’ words demonstrated the sharp partisan divide on the issue of health care reform. The fiscal impact for the state is particularly important to Indiana lawmakers because money is tight and lower-than-expected tax collections have already forced a $300 million cut in K-12 education funding.

The budget committee’s chairman, Sen. Luke Kenley, R-Noblesville, pondered having Indiana opt out of Medicaid altogether.

“It appears we don’t have any choice, even under the best-case scenario, not to pay more money as a state,” said Kenley, who chairs the Senate Appropriations Committee while the General Assembly is in session.

“I don’t think getting out of Medicaid is a choice I’m very interested in, but what other choice do I have if I don’t want to spend a lot of money?”

Meanwhile, Sen. John Broden, D-South Bend, said if the $3.6 billion figure is accurate, it would be money well spent. He said state lawmakers would “do cartwheels” if the state was obligated to pay only 10 percent of the cost of items such as highway projects.

“Yes, it’s going to be more money. But a half-million people are going to get health care that don’t have it. And if anyone thinks we were going to have more people insured through the private system had Congress done nothing, then they’re living in a dream world,” Broden said.

The presenter, Milliman’s Robert Damler, acknowledged discrepancies between his firm’s analysis and other reports indicating the state could actually save money as a result of the new health care law.

“They’re not producing information on an individual state-by-state basis, so it is very difficult for us to make direct comparisons,” he said.

If Milliman’s analysis is accurate, it will be the next governor, rather than Daniels, who has to deal with the added costs.

In fiscal year 2011, which starts this July and ends June 30, 2011, the health care law will add $23 million in costs the state must cover. In fiscal 2012, that number is $45 million, and then $45 million again in fiscal 2013.

The costs begin to jump in fiscal 2014, to $230 million. By fiscal 2020, that cost is listed at $752 million.

Not included in the report is the $140 million that is currently being taxed each year for Healthy Indiana. After that program is wound down, the money could be used to take a chunk out of new health care reform-related costs.