Medicaid expansion is just starting to hit home. CMS reported that in August 2014 Medicaid enrollment hit 67.9 million lives, an increase of 15% over the prior year. States which opted to implement the Affordable Care Act’s Medicaid expansion with functioning exchanges showed the most significant increases: Kentucky 72.4%; Nevada 63.4%; Vermont 62.8% and Oregon 59.7%.

These increases should be setting off fiscal alarms. For now, the federal government will be funding the expansion, but under ACA will soon revert to federal-state partnership funding.

It’s not too far of a stretch to predict that we have only seen the start of this expansion. With improved exchanges, better communications and the advent of the individual mandate and shared responsibility payment, there will be greater uptake of Medicaid. As more states succumb to the pressure to adopt expansion, growth rates will redouble. And don’t overlook employers who are realizing that they can push their low-income Medicaid eligible employees off the employer plan onto the public dole. My colleague, Adam Okun, was quoted “above the fold” on page one of the Wall Street Journal in October about ways to game the employer mandate and no doubt this will add to Medicaid growth rates.

State response 

The states clearly see this threat. Interestingly, Medicaid is the laboratory for health care innovation in many states. Care management limits are tested there like in no other part of the market. Four states are limiting coverage for high cost specialty medications and turning to “managed care heavy” to keep costs under control. Patient-Centered Medical Homes and ACOs are widely used. As a result, Medicaid programs are further expanding in many states adding new and costlier groups such as foster children and older dual Medicare-Medicaid eligible.

The states and the federal government are running hard and fast to plug holes in the system. For example, I wouldn’t be surprised to see laws prohibiting employers from inducing employees to join Medicaid, similar to Medicare and TriCare rules. Cost paradigms are changing, and funding health care will be a challenge for all payers. Change will be the new normal in health care.

Hasday is president of Frenkel Benefits, LLC, one of the largest privately held independent employee benefits brokers in the United States and EVP of Frenkel & Company. Reach him at chasday@frenkel.com or (212) 488-0200, and read more from Hasday at frenkelyspeaking.com.

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