Editorial: Obamacare savings may be short-lived

The promise of free money is hard to turn down, and so when Obamacare offered the states a cheap way of expanding Medicaid, Gov. Rick Snyder found it hard to resist. Yet just a year into Michigan’s expansion, it’s not such a bargain.

In its mission to make sure more Americans have health insurance, the Affordable Care Act depended on states to expand their Medicaid programs to individuals with incomes under 138 percent of the federal poverty level.

Given the health insurance program for the poor already eats significantly into state budgets, Obamacare had to sweeten the deal by dangling financial support for states that signed on.

Michigan is one of 30 states that agreed to expand Medicaid. The 20 that didn’t are looking like the smart ones.

The federal government promised to pay 100 percent of the expansion until 2017, with states picking up 5 percent of the tab that year and increasing gradually to 10 percent in 2020.

In the short term, this looked to be a great deal for Michigan, and it’s why Snyder and reluctant Republicans in the Legislature got on board in 2013. The state estimates the current savings at $220 million a year, largely from lower general fund spending on health costs.

But here’s why some business groups that once supported the expansion are starting to get worried: They fear the savings will soon become a loss, and they’ll have to cover the difference.

Snyder had wanted the Legislature to set aside a portion of the annual savings into a “lockbox” that the state could start drawing on in 2017, when it will have to contribute toward the expanded Medicaid program. Between 2014 and 2015, the governor wanted $225 million placed into safekeeping.

Unfortunately, that savings account was never created.

Michigan dubbed its expanded program Healthy Michigan, and it’s been more popular than expected. After one year, more than 600,000 new individuals are now covered — which far exceeded the state’s projections.

Right now, the federal government is paying the estimated $3 billion in expenses, but in 2017, Michigan will have to kick in $150 million, and $300 million by 2020.

Businesses that offer health plans to employees are concerned they’ll get hit with a higher state tax on paid insurance claims. The Health Insurance Claims Assessment, currently set at 0.75 percent of paid claims, is directed toward the state’s share of Medicaid costs.

While the governor’s office says these concerns are premature, employers are right to worry. The money has to come from somewhere, and raising the HICA tax is the most likely target.

The Healthy Michigan law does include a way out of the expansion if costs outweigh savings. The state hasn’t reached that point yet, but it may need to consider using this safeguard in the future.

Medicaid already consumes more than 20 percent of the state’s budget. It shouldn’t become an even greater drain on the state.