RAND Review News for Summer 2011

Higher Coverage Rates, State Costs Seen Under U.S. Health Reform

As a result of U.S. health care reform legislation, the proportion of nonelderly people with health insurance will rise by 2020, but so will state government spending in many cases. These are the principal results of a RAND study estimating the effects of the new legislation on California, Connecticut, Illinois, Montana, and Texas.

The Patient Protection and Affordable Care Act (ACA) has several requirements aimed at increasing the rates of health insurance coverage. These include expanding Medicaid programs to cover people in households with incomes below 133 percent of the federal poverty level, requiring states to develop health insurance exchanges through which individuals and small businesses can purchase coverage, requiring large and mid-size employers to provide qualifying coverage to their employees, and mandating that individuals obtain coverage.

Many of these provisions, to be fully implemented by 2016, will impose new costs on state governments. For example, the states will have to pay a growing percentage (to be capped at 10 percent in 2020) of the costs for those newly eligible for Medicaid. The individual mandate will spur many people who are currently eligible for Medicaid but not receiving it to apply for it. State governments will have to pay higher shares of the cost for these recipients.

Researchers found that with ACA, the proportion of nonelderly people with insurance across these states will vary from 94 percent to 97 percent. Without ACA, the proportions would vary from 72 percent in Texas to 89 percent in Connecticut, as shown in the figure.

The Proportion of Nonelderly People with Health Insurance in 2020 Will Rise Across the Five States Studied

The Proportion of Nonelderly People with Health Insurance in 2020 Will Rise Across the Five States Studied
SOURCE: How Will Health Care Reform Affect Costs and Coverage?, 2011.

The individual and employer exchanges will account for most of the increase in the insured. The nonelderly population obtaining insurance through the exchanges by 2020 will range from 10 percent in Connecticut to 20 percent in Montana.

Medicaid will also be a substantial source of new insurance coverage. In 2016, the increases in Medicaid rolls will range from 31 percent in Connecticut to 80 percent in Texas. These increases will drive upward the annual state government spending on health care in four of the states by 2020, adding $2.8 billion to the annual costs in Texas and $4 billion to those in California. In Connecticut, because people now enrolled in a state program will become eligible for Medicaid, the annual state spending will decrease by $290 million in 2020.

“State decisions in how to implement the ACA could alter these projections,” said David Auerbach, a RAND policy researcher who led the study. “The extent of outreach to enroll new individuals in Medicaid could affect coverage rates and state costs. States may also bundle payments or regulate hospital rates to limit growth in health care costs.”

Not all aspects of the ACA were accounted for in these estimates. Reforms affecting Medicare and health care delivery systems could affect state costs but were beyond the scope of this study. The research also did not account for potential reductions in state payments for uncompensated care or for potential state savings from re-categorizing certain groups of currently enrolled Medicaid recipients as “newly eligible.” square

For more information:

How Will Health Care Reform Affect Costs and Coverage? Examples from Five States, RAND/RB-9589-CSG, 2011.

Interactive graphic:

Higher Coverage Rates, State Costs Seen Under U.S. Health Reform. View additional comparisons of coverage rates and state costs with and without health care reform.