Next Steps: Health Care Cost Savings and Coverage for the Poor

June 28th, 2012



The Supreme Court ruling on health care re-affirms the President’s goal of stable and secure coverage for the middle class and the nation. It is time for the Republicans to drop their fight against the law and join forces with Democrats against a common enemy: rising health care costs.  Both parties should take full advantage of the key role that states play in health care, an important topic the Supreme Court also ruled on today.

Today’s ruling affects the expansion of health care coverage to the poor under Medicaid. As a quick refresher: the Affordable Care Act required states to expand coverage to all the poor under Medicaid. Today, one-third of the poor have no coverage under Medicaid, through a job, or any other source.

The Supreme Court affirmed the federal funding for that coverage, but said states should be free to choose whether to accept it for expanding Medicaid. From the start of the expansion in 2014 through 2016, federal funding covers 100 percent of the costs of expanding Medicaid, but after that, the states will start splitting the cost with the feds. The state’s costs are capped at 10% of the total, far less than their typical share, which averages 32% across the states.

What does this mean?

Come 2017, each state will have to decide whether to pay its share in order to keep coverage for all of the poor. Given their tight budgets, states will need help keeping this commitment to the poor. Congress should start now to make sure that states can afford it.

One way to do this is to ensure states are full partners in a nationwide effort to restrain health care costs. States can do a lot to control costs for two key reasons. First, they are responsible for much of the economic, legal, and regulatory structure of health care. Second, they can convene all the vital stakeholders to coordinate strategies on reducing less effective costs that involve only employers or only Medicare.

President Obama’s administration has already started fostering such state-federal projects. The Center for Medicare and Medicaid Innovation has launched multiple state and private sector efforts to test new ideas for cost savings. Congress could permanently authorize states to encourage such innovations along with protections for patients so they are sure to have access to high quality care.

To illustrate possible savings, reducing projected federal health care costs by just 0.5% would produce savings of $61 billion over ten years. That would go a long way toward covering the states’ cost for covering all the poor.