How Will Health Care Reform Affect Costs and Coverage? Examples from Five States
A series of new reports by the RAND Corporation outlines the impact that national health care reform will have on individual states, estimating the increased costs and coverage that are expected in five diverse states once reform is fully implemented in 2016. In the states studied -- California, Connecticut, Illinois, Montana and Texas -- the proportion of uninsured residents declines significantly under health reform. Government costs will rise in four of the states studied, primarily a function of increased spending on Medicaid.
This study was funded in part by a generous allocation from The Council of State Governments 21st Century Foundation, an operating entity within The Council of State Governments, dedicated to inspiring excellence in state government by empowering state leaders to address today’s most pressing issues.
- The percentage of the state population with health care coverage will increase significantly in all five example states.
- The percentage of employees offered insurance will not change substantially, but a small number of employees in small firms (defined as those with under 100 employees in 2016) will obtain employer-sponsored insurance through the state insurance exchanges.
- Substantial numbers of the nonelderly will choose to buy coverage through the exchanges.
- In most cases, the majority of new Medicaid enrollees will be newly eligible, but increased enrollment of those previously eligible will cost the states more because the federal government heavily subsidizes newly eligible enrollees.
- Total state government health care spending will increase in four of the states. Spending will decrease in Connecticut because some low-income individuals previously covered under the state’s own insurance plan will now be covered under Medicaid, and the federal government will pay a large portion of their costs.
The Patient Protection and Affordable Care Act (ACA) contains substantial new requirements aimed at increasing rates of health insurance coverage. These include:
- mandatory expansion of Medicaid programs to cover individuals in households with incomes below 133 percent of the federal poverty level ($14,484 for a single person and $29,726 for a family of four in 2010)
- a requirement that states develop and run health insurance exchanges through which individuals and small businesses can purchase health care coverage
- a provision that large and mid-sized employers —including state governments—must provide qualifying coverage to employees or face the possibility of penalties
- a requirement that most individuals purchase or otherwise obtain coverage.1
The model is designed to help elected officials and policymakers at the federal and state levels anticipate the choices that will likely be made by individuals, employers, insurance companies, and governments as various provisions of the ACA are implemented.
The table summarizes the state-specific estimates resulting from the modeling effort. Results were estimated for each year from 2011 to 2020. Most of the estimates in the table are for 2016, the year in which all of the provisions in the ACA related to coverage expansion will be fully implemented. The projections of increases and decreases shown in the table are all relative to what would be the case in the absence of the ACA.
Rows 3 and 4: The ACA will have only a slight effect on the overall percentage of employees offered employer-sponsored insurance, but a small number of employees in small firms will obtain their employer-sponsored insurance through the state insurance exchanges.
Row 5: Substantial numbers of the nonelderly will choose to buy coverage through the state insurance exchanges.
Rows 6 and 7: The expansion in Medicaid enrollment has two sources: individuals who are newly eligible under the ACA and those who were previously eligible but enrolled only after implementation of the ACA, possibly because of the law’s individual mandate. Although the newly eligible group is typically the larger of the two, the previously eligible enrollees are more costly to the states because the federal government pays a substantial portion of the costs for newly eligible enrollees (100 percent in 2014, decreasing gradually to 90 percent in 2020 and beyond) but only the regular share for the previously eligible (between 62 and 78 percent in
Row 8: Total state government health care spending will increase in four of the states. Spending will decrease in Connecticut because some low-income individuals previously covered under the state’s own insurance plan will now be covered under Medicaid, and the federal government will pay a large portion of their costs.
Row 9: This row shows the net change in state costs in 2016 (reported in row 8) divided by the additional number of insured individuals (row 2). The main reason that these numbers vary substantially by state is the differing proportions of new Medicaid enrollees who will be newly eligible versus those who were previously eligible.
Download the reports:
1 The act also involves substantial changes to Medicare, insurance regulation, and other aspects of health care that could substantially impact state and private-sector costs and coverage. These factors were not included in the RAND analysis.