Health-care overhaul's costs to Virginia and Maryland unclear

By Rosalind S. Helderman and Aaron C. Davis
Washington Post Staff Writers
Friday, June 25, 2010; B01

In Virginia, where Republicans have steadfastly opposed the federal health-care law, Gov. Robert F. McDonnell says the overhaul will cost residents almost $1.5 billion in coming years. But in Maryland, where Gov. Martin O'Malley has enthusiastically embraced it, his Democratic administration has been quick to estimate that the law will save at least $1 billion.

Who's right?

Maybe both. Or possibly neither.

As states begin implementing the health-care law, they are acknowledging a difficult reality: Their shares of the costs, particularly given that they are set to escalate later in the decade, are exceptionally cloudy. There are several reasons why the law will cost some states more than others. For instance, states such as Maryland with generous health plans for low-income residents will need to spend less to reach new federal mandates than states such as Virginia, which cover fewer residents.

But there are also so many unknowns that politicians can interpret the costs in any number of ways. If government leaders track spending for the remainder of the decade, as Maryland Democrats have done, the law's costs look low. Look a bit further into the future, as Virginia Republicans do, and costs expand quickly. Even near-term, states' costs are constantly put in doubt because they must rely on the federal government to keep its funding commitments -- a fact highlighted Thursday as the Senate fell short of the necessary votes to advance promised short-term aid.

So in states where political leaders have opposed the law, they have circulated analyses predicting calamity to their budgets. That's the case in Florida, where officials have said in a suit challenging the law that it will cost the state billions.

In Virginia, where officials say the overhaul will cost $1.47 billion over the next 12 years, McDonnell has called the law a "historic and unfunded federal mandate on the states" and Attorney General Ken Cuccinelli II has bemoaned its possible impact on the bottom line.

But governors who supported the law have found evidence to show that their states will come out ahead. Leaders in Wisconsin, for instance, say the state will save at least $745 million by 2019.

In Maryland, O'Malley has cast the new law as a fiscal savior that will curb out-of-control health-care costs. The day after it passed in March, he was among the first to estimate it would save at least $1 billion over 10 years. Last week, his health secretary predicted that a more detailed analysis due out soon would show "substantial" savings.

In his campaign for reelection, O'Malley often mentions the savings and his support of the law as reasons to keep him in office. O'Malley's chief rival, former governor Robert L. Ehrlich, Jr. (R), accuses him of inflating potential savings and underestimating costs.

"Every state is making assumptions," said Eric R. Wagner, a vice president for MedStar Health, who said his company is having similar trouble estimating costs for its nine Washington area hospitals. "There is always an element of politics. But I suspect there is also an element of truth."

Fuzzy expenses

Half of the expansion in health-care coverage expected to flow from the new law will come from expanding Medicaid, which is jointly funded by states and the federal government.

That means state cost estimates rely heavily on assumptions about how many new residents will sign up for the program -- no easy task. Officials must predict population growth, estimate how much money residents will make, and guess how successful Medicaid will be at identifying and signing up the newly qualified.

Starting in 2014, anyone making up to 133 percent of the federal poverty line -- now $14,400 for a single person and $29,300 for a family of four -- will qualify for Medicaid under the new law.

The requirement will affect states differently depending on the generosity of their existing Medicaid program.

Virginia enrolls only the blind, disabled, some needy children and deeply indigent parents who make up to 24 percent of the poverty line. State officials have estimated that boosting coverage to the required level means as many as 426,000 people might become part of the program, which includes about 837,000 Virginians.

The change will result in fewer new Medicaid patients in Maryland, which extends some form of coverage to most residents making up to 116 percent of the poverty level. It will have to provide more robust benefits to about 112,000 residents, but state officials estimate that Maryland will have to extend entirely new benefits to only 21,000 -- less than one-twelfth the number Virginia faces.

But both states might be engaged in wishful thinking when it comes to residents who are newly eligible for Medicaid. Maryland's estimate assumes that far fewer than the number eligible will join the program -- which matches experience. Virginia's estimate assumes about 270,000 newcomers to Medicaid, the most conservative of several enrollment models.

"This is likely to be something that will be a moving target as we go forward," said Bill Hazel, Virginia's health and human resources secretary. "We're not trying to be alarmist and panicky. We're trying to be realistic."

Under the new law, the federal government will at first pay all of the costs for new enrollees. Then the states will gradually have to chip in up to 10 percent by 2020. It's a better deal than the 50-50 split that Maryland and Virginia have typically had to pay but means that cost estimates for states look better in the near term.

Virginia's widely cited $1.5 billion cost estimate includes expenses through 2022, meaning it accounts for two full years when the state will be paying 10 percent. Nearly 40 percent of Virginia's total 12-year cost estimate comes in those two years. In Maryland, published estimates of cost savings extend to 2019, a year before the state would feel the full cost of paying its 10 percent share.

Fuzzier savings

If the costs of the law are uncertain, the possible savings are even fuzzier.

Maryland's estimate of $1 billion in savings is based largely on the state assuming it could do away with some big-ticket programs it funds, such as about $100 million it sets aside each year to provide insurance for those denied coverage because of preexisting or high-risk conditions. The federal law will soon require insurers to cover such patients.

Maryland also banks on decreasing payments to hospitals for treating the uninsured because, theoretically, far more of those should be covered by Medicaid or insurance.

"We will see savings, and they will be substantial," predicted John M. Colmers, the state's secretary of health and mental hygiene, who is co-chairman of a council O'Malley established to implement the overhaul.

Virginia estimates that far less of its costs will disappear.

Without the overhaul, for example, the state expects to pay about $1.3 billion over the next 10 years to help cover the costs of caring for the uninsured at the hospitals at the University of Virginia and Virginia Commonwealth University.

With the law, the state assumes it will recoup less than 10 percent of those costs.

Darrell Gaskin, an associate professor of health economics at the University of Maryland, said the biggest unknown for states is that all of their models hinge on a larger question of whether the overhaul will succeed in bringing down the costs of care. "The real question is: Can everything together really bend that cost curve of care?" he said. "Without that, none of this will be sustainable."

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