June 2, 2016

The Compelling Fiscal Logic for Expanding BadgerCare

Budget Project Analysis Counters the Cost Concerns Raised by Expansion Opponents  

Suppose you could refinance your mortgage and initially save $100 per month, but the net savings would decline over a few years to $90 per month. Would you jump at that opportunity, or would you be scared off by the fact that the larger initial savings wouldn’t continue indefinitely?

I’d hazard a guess that almost everyone would make that mortgage change, because even after the monthly savings contract a bit, refinancing would boost your budget by more than $1,000 per year.

Wisconsin lawmakers are facing an analogous choice relating to the state budget and the financing for BadgerCare.  They could essentially refinance BadgerCare and produce huge net savings by expanding eligibility for adults and thereby qualifying for a much higher federal reimbursement rate; however, the savings would come down a little bit over the next few years.

According to the most recent LFB analysis, issued last December, an expansion of eligibility for adults to 133 percent of the federal poverty level (FPL), from 100 percent of FPL (which now amounts to just $7.70 per hour for a single parent with one child), would save $197 million in the first year of the next biennium. The savings would gradually decline, but would still amount to a net budget gain of $171 million in fiscal year 2020-21, even though about 83,000 more adults would have health insurance through BadgerCare.

A new analysis contained in a Wisconsin Budget Project blog yesterday responds to the concern raised by a few prominent opponents of expansion who argue that the declining annual savings would put the state in the position of having a structural deficit. That’s untrue, as long as state policymakers plan ahead, rather than treating every dollar of the initial savings as an ongoing funding source for new tax cuts or spending.

The Budget Project analyzed the fiscal effect of expanding BadgerCare for adults in January of next year, and at the same time restoring the cut of about $10.4 million per month made to the University System’s budget. Using the LFB estimates of the BadgerCare savings, the Budget Project calculated that the changes noted above would still yield very substantial net savings. As this graph illustrates, if lawmakers put aside the remainder of the savings, state budget reserves would grow by $271 million over the next five fiscal years.

BC Expansion Graph for JP Budget Project Blog

Another concern recently raised by a few opponents is that some expansion states, such as Ohio, have had higher-than-anticipated growth in Medicaid participation and higher-than-expected costs. In essence, those legislators seem to be trying to undercut the Fiscal Bureau’s cost saving estimate.

The Budget Project blog post explains why Wisconsin is in a much different position than states like Ohio, and why the experience in those states does not change the fact that Medicaid expansion would yield very large savings here. The main reason is that Wisconsin already expanded eligibility for childless adults to the poverty level, and already experienced higher-than-anticipated participation. The most recent LFB analysis took all of that into account, and found that it makes BadgerCare expansion an even better deal for Wisconsin. Based on Wisconsin enrollment trends, as well as lessons from other states, the LFB concluded that reducing the state share of the cost of covering childless adults to 10 percent or less, instead of the current 42 percent, would save much more than previously estimated.

Although the Budget Project blog post takes issue with the latest arguments made by some opponents of expansion, it also commends them for engaging in a debate focused on empirical evidence. They are right to say that we need to learn from the enrollment trends elsewhere, as well as from the data related to Wisconsin’s partial expansion.

Assuming that the next President and next Congress do not repeal the Affordable Care Act, the debate about expanding BadgerCare will resume in 2017, as state policymakers contend with another very challenging state budget. At that time, I’m sure the Fiscal Bureau will update its calculations of the costs and benefits of expanding BadgerCare, taking into account new enrollment data from our state and others. And I’m confident that the LFB will once again conclude that expanding BadgerCare would yield a very large net savings.

Jon Peacock