LANSING – Expanding Medicaid eligibility as the federal Affordable Care Act wants but effectively can no longer require, is more a decision based on policy than fiscal issues because the expansion could actually save Michigan money, a memo from the Senate Fiscal Agency says.

Because the expansion would allow the state to shift general fund expenses now made for community mental health patients who could be Medicaid-eligible, the state might save as much as $200 million, the memo says.

In fact, the memo suggests the savings could more than offset any long-term costs the state might have in expanding Medicaid eligibility.

The administration of Governor Rick Snyder has said it is still reviewing whether it will propose expanding Medicaid as the ACA calls for.

The memo was sent to Senate members on June 28, the day the U.S. Supreme Court upheld the constitutionality of the main, controversial provision in the 2010 act, that of the individual mandate in the act. The ruling, by Chief Justice John Roberts, upheld the mandate on the basis of Congress’s taxing authority and not its ability to regulate commerce.

However, the ruling also overturned one section of the law that would have had the biggest direct impact on Michigan and all other states. The act required states to expand eligibility for Medicaid to all persons with incomes of 133 percent of the U.S. poverty limit or less. If a state failed to expand Medicaid eligibility, the law said it could lose its entire federal Medicaid match. Mr. Roberts ruled that provision exceeded Congress’s authority, and therefore while the law still calls on states to expand Medicaid eligibility for persons with incomes of 133 percent of poverty it now effectively is an option for states.

In the memo, Steve Angelotti said expanding Medicaid would add about 400,000 people to the roles in the state, costing an estimated $2 billion in gross funding. Under the act, the federal government would pay 100 percent of the increased cost until 2017, at which time the federal match rate would be phased down to 90 percent of the cost. The federal level would reach 90 percent in 2020.

Angelotti said the provision expanding Medicaid was not just a stick to the state. There were carrots as well, he said. For example, it had to be remembered the state would not face any additional costs for the additional people on the system for the first three years of their eligibility.

And the expansion “would lead to some significant savings in the area of community mental health non-Medicaid services.” The state now spends about $270 million in general funds for persons in the CMH system, and most of that is spent on individuals who would be eligible for Medicaid coverage if the system was expanded, he said.

“It is now the SFA’s belief that the amount that could be converted would be at least $200 million,” Mr. Angelotti said.

“Thus, while there would be long-term GF/GP costs for the expansion, there would be savings that would more than offset any costs from the first day,” he said. “As such, it is unlikely that the expansion would lead to any GF/GP costs for the state in the first few years; instead, there likely would be savings of at least $200 million GF/GP until the match requirement started to take effect in 2017.”

In effect, Angelotti said, the decision to expand Medicaid “will be more of a policy issue than a fiscal issue. The fiscal impact of the expansion would not be an impediment to compliance.”

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