New Hampshire’s Medicaid Burden:

How the Affordable Care Act Threatens the Live Free or

Die State
Derek Pyburn
Abstract: The central component of the Patient Protection and Affordable Care Act is the increased eligibility
standards for Medicaid. By increasing the eligibility level to 133% FPL, both states and the federal government
will be responsible for funding this increased expansion. In order to maximize the number of individuals with
coverage, a maintenance of effort provision was included that prohibits states from reducing their eligibility
requirements. In New Hampshire this is problematic because the state is already facing budget deficits;
additionally, because of the Affordable Care Act they are unable to deal with the deficits in the way that is in
their best interest. In order to control for the cost of Medicaid, states require flexibility to develop their own
budgets. The program, which is notorious for fraud, should be converted into a block grant system which will
require states to make their programs efficient and
eliminate the perverse incentives inherent in the program Talking Points
today.
 The Patient Protection and Affordable Care Act
contains numerous provisions that will cause
What is Medicaid? financial difficulty for the state of New
Hampshire
Medicaid is a government entitlement program  New Hampshire spends 26.5% of its total
that plays a significant role in the United States revenue on Medicaid, making it the largest
healthcare industry. Originally, Medicaid was budget entitlement since it surpassed
intended for individuals who were receiving welfare elementary and secondary education in 2004.
support. As time progressed, the eligibility levels  The Maintenance of Effort requirement must be
and services provided by Medicaid have increased repealed in order to allow for states to control
to cover those without jobs, those whose income is their own Medicaid spending and change
a certain percentage of the federal poverty level eligibility rules that are suitable for the state.
(FPL), children, and the disabled, including seniors  To control Medicaid costs, funding should be
who receive Medicare (“dual eligibles”).1 Medicaid converted into a block grant system, which will
is jointly funded by both state and federal force the states to make the program as
government. The federal government funds an efficient as possible.
average of 50% of total Medicaid spending. Due to
the nature of Medicaid, when an economic
downturn occurs, the number of Medicaid
beneficiaries greatly increases.2 (FPL).3 In 2009, Medicaid services were used by
With the enactment of the Patient Protection and 50.1 million Americans, which cost $380.6 billion
Affordable Care Act (ACA), the number of in total expenditures, $250.9 billion of which was
individuals who will be enrolled in Medicaid will financed by the federal government. Chief Actuary
increase because the eligibility level has been Richard Foster at the Center for Medicare and
expanded to 133% of the federal poverty line Medicaid Services estimates that in the time period
between 2014—when Medicaid eligibility will be
1
“Medicaid: A Primer: Key Information on Our Nation’s Health
3
Coverage Program for Low-Income People”, The Kaiser Richard Foster, “2010 Actuarial Report on the Financial
Commission on Medicaid and the Uninsured, June 2010. Outlook for Medicaid,” Department of Health and Human
2
Ibid Services: Center for Medicare and Medicaid Services
increased—and 2019, Medicaid spending will
increase by over by $400 billion.4
This increase in total Medicaid spending directly
affects the states. With the increase in projected
expenditures, state governments are debating
budgets that will allow for the increased eligibility
expansion. While the federal government has been
the main focus of media attention, states are also
having issues balancing their own budgets, and have
been forced to cut back programs such as education
funding. It must not be forgotten that when the
federal government experiences increased expenses
in Medicaid, the states also experience these
increases.
This crisis is not confined to the most populous or
the poorest states. Provisions within the ACA, such
as expanded Medicaid eligibility and the
Maintenance of Effort (MOE) requirements place
increased pressure on all state budgets that will
likely cause increased deficits or the cutting of other
items. Each of the 50 states is trying to decide how
to counteract the coming debt increase and the
Affordable Care Act is preventing them from
controlling their largest budget item, Medicaid.
New Hampshire Medicaid Overview
The state of New Hampshire, tied for the freest
state in the Union and ranked first in the nation for
fiscal policy by the Mercatus Center,5 is facing
budget deficits6 that will only be exacerbated by the
Patient Protection and Affordable Care Act (ACA).
Currently, New Hampshire spends 26.5% of its total
budget on Medicaid, followed by elementary and
secondary education (22.4%) and then
7
transportation (10%). For fiscal year 2009, the state
4
Ibid
5 8
William P. Ruger, “Freedom in the 50 States: An Index of
Personal and Economical Freedom,” Mercatus Center,
George Mason University,
http://mercatus.org/sites/default/files/publication/Freedo
m_in_the_50_States.pdf, 2009
6
“House Finance Committee’s FY 2012-13 Budget Proposal,”
New Hampshire Fiscal Policy Institute, March 29, 2011
7
“Fiscal Year 2009 State Expenditure Report,” National
Association of State Budget Officers,2010
of New Hampshire spent $4.95 billion on medical
care, while $1.36 billion went to Medicaid alone.8
Due to the economic wellbeing of the state, New
Hampshire typically receives a 50% Federal
Medical Assistance Percentage (FMAP), which
means that for every dollar the state spends, the
federal government gives the state one dollar. When
the economy began to decline, Congress enacted the
American Recovery and Reinvestment Act which
increased this percentage to 61.59%, which helped
relieve budget shortfalls.9 Since the economic
conditions have not improved much, unemployment
compensation claims have only slightly decreased
since 200810, Medicaid expenditures have
increased, and the amount of tax revenue for the
state have decreased.11
In July of 2008, 117,810 people signed up for
Medicaid; in June 2009, the number increased to
129,071 in one month.12 With the continuing
increase of citizens signing up on the Medicaid
rolls, the state is facing tough budget problems
which will likely be dealt with by cutting funding
for certain programs, such as elementary and
secondary education. In order for New Hampshire
to be able to deal with their budget problems, they
must have the ability to reform their Medicaid
system. In the ACA, New Hampshire will be
limited in the action they can take in reforming their
budget as well as being required to increase their
Medicaid eligibility level.
Maintenance of Effort
The Affordable Care Act contains a provision
known as Maintenance of Effort which states,
http://www.nasbo.org/LinkClick.aspx?fileticket=w7Rq
O74llEw%3d&tabid=79
Office of Medicaid Business and Policy, New Hampshire
Medicaid Annual Report, 2009
9
Ibid
10
“New Hampshire Economic and Labor Market Information
Bureau Initial Claims 1991-2011,” New Hampshire
Unemployment Security
11
“An Overview of New Hampshire Tax System,” New
Hampshire Fiscal Policy Institute, December 2010.
12
Ibid
 As a condition for receiving any Federal
payments under section 1903(a) for calendar
quarters occurring during such period, a
State shall not have in effect eligibility
standards, methodologies, or procedures
under the State plan… that are more
restrictive than the eligibility standards,
methodologies, or procedures, respectively
under the plan or waiver that are in effect on
the date of enactment of the Patient
13
Protection and Affordable Care Act.
This provision is not something that is unique to the
Affordable Care Act since it was included in the
American Recovery and Reinvestment Act
14
(ARRA). The Affordable Care Act makes this
provision more permanent and does not run out in
the short term as the economic assistance of the
ARRA does. For New Hampshire, the Medicaid
eligibility that was in place at
the passage of the Affordable
Care Act cannot be changed
“The Affordable Care Act is projected to
or the state will lose its
increase Medicaid expenditures by a total of $445
federal funding. Given that
billion for FY 2010 thought 2019, an increase in
the state normally receives a
about 8 percent over projections of Medicaid
50% (temporarily 61.95%)
spending without the impact of the legislation”
match for its Medicaid
---Richard Foster, CMS
program from Washington, it
would be unwise to cut
services and lose the federal funding. This provision
forces states to look for other programs to cut when
attempting to balance their budgets. Since a
reduction in the Medicaid coverage will force the
state to have to pay 100% of the expenditures, other
programs such as elementary and secondary
education, higher education, transportation, and
other programs are on the table for funding cuts.
New Hampshire offers numerous state and
federally mandated Medicaid services. Along with
the state and federal services, New Hampshire has a
long list of “optional” services, which means that
13
H.R. 3590, The Patient Protection and Affordable Care Act,
http://www.gpo.gov/fdsys/pkg/BILLS-
111hr3590enr/pdf/BILLS-111hr3590enr.pdf, p. 157
14
Brian Blasé, “Crushing Weight: National Health Care Law
Threatens to Make Medicaid and Unstable Burden for
Ohioans,” The Buckeye Institute, December 2010.
they are subsidized according to the states FMAP.15
In 2014, when the Medicaid eligibility standards
will relax, the states will adopt those eligibility
standards and will be unable to change them. While
New Hampshire is already experiencing an increase
in Medicaid spending, the coming eligibility
increase will force them to take on more recipients
and will not give them a feasible option to reduce
the growth of the program.
Generally, when costs increase, states have three
options to reduce their Medicaid spending: reduce
eligibility, cut services, or reduce provider
reimbursements.16 The MOE provision eliminates
the ability to tighten eligibility standards and
services, which leaves cutting provider
reimbursement rates as the only option left. This
can be problematic because the reimbursement rates
for Medicaid are already low in comparison to other
types of insurance. This is
problematic because
Medicaid patients already
have difficulty being seen by
physicians.1718
Increased Eligibility
One of the primary
objectives of the Affordable
Care Act is to decrease the
number of Americans without health insurance. By
increasing the eligibility to 133% FPL, Richard
Foster, the actuary at CMS, expects the increase in
Medicaid recipients to reach 20 million.19 This
expansion of Medicaid is the primary way in which
health reform will actually be implemented. Not
only is eligibility increased to accommodate those
15
“Medicaid: An Overview of Spending on “Mandatory” vs.
“Optional” Populations and Services”, Kaiser Commission on
Medicaid and the Uninsured, June 2005
16
17
Brian Blasé, “Crushing Weight”
R J Blendon, K Donelan, C Hill, A Scheck, “Medicaid
beneficiaries and health reform,” Health Affairs, 12, no.1
(1993):132-143,
http://content.healthaffairs.org/content/12/1/132.full.pdf
18
Peter Cunningham, “Do Reimbursement Delays Discourage
Medicaid Participation By Physicians?,” Health Affairs, Vol. 8
January 2009
19
2010 Actuarial Report
who have lower income, but eligibility has also
increased so that children under the age of 26 are
required to be under their parents’ plan. Along with
the increase in FPL and the children’s age
requirement, insurance companies are not allowed
to deny coverage to those who have pre-existing
conditions. Until 2019, the federal government will
pay 95% of the expenditures of the new enrollees.
This will be problematic because “the Affordable
Care Act is projected to increase Medicaid
expenditures by a total of $455 billion for FY 2010
through FY 2019, an increase of about 8 percent
over projections of Medicaid spending without the
impact of the legislation.”20 After 2019, the federal
government will reduce its share of spending,
putting more of the burden on the states to cover the
newly insured individuals.21 However, it is
important to note that the federal government will
not pay for everyone who enrolls in the program
after the law’s implementation. Those who apply
for Medicaid and were eligible under previous state
eligibility will not be covered by the federal
government’s FMAP22 and the cost will be taken on
by the state. This raises questions for states because
they must construct a budget and project possible
spending increases since individuals may enroll in
the program but not be covered by the federal
government.
Along with the budgetary issues into which
the ACA forces states, access and quality of care
come into question. Medicaid is already notorious
for paying physicians low reimbursement rates,
which has caused a decrease in doctors who are
willing to see patients. When the Medicaid
expansion is implemented, an increase in the
amount of health care seekers will increase, which
will likely result in physicians turning down more
people. Also, because of the poor reimbursement
rates, Medicaid patients tend to have lower quality
of care in comparison to someone who does not
have insurance.23
20
2010 Actuarial Report
21
Ibid.
22
Brian Blase, “Crushing Weight”
23
Scott Gottlieb, Medicaid Is Worse Than No Coverage at All
By combining the increased eligibility
standards with the poor quality of care, the ACA
also contains an individual mandate, meaning that
all Americans must obtain insurance or be subject to
a fine.24 The individual mandate assures states that
they must comply. Not only must the state
governments comply, but the mandate also puts
stress on private businesses that will affect the
economic wellbeing of the state.
Remove the Maintenance of Effort Requirement
The MOE must be removed from the legislation
or fully repealed altogether. Because of this
provision, New Hampshire, like many other states,
does not have the ability to properly address budget
issues. Medicaid spending in New Hampshire has
been increasing since 1995 and has rapidly
accelerated since 2003. Projected spending for
Medicaid shows a large increase in budget
expenditures, adding a fiscal burden to the state. As
shown on the graphs on page 4, New Hampshire’s
Medicaid spending has been on the rise. While the
unemployment and fiscal health of the state are well
above most in the country, Medicaid is still the
number one spending category. As seen on the
graphs, in order for the state to be able to pay for
the increase in Medicaid spending, elementary and
secondary education is usually the first to go.
Between 2003 and 2004 Medicaid took the top spot
for spending, and then it decreased when the
economy was strong, and now it has drastically
increased and is still projected to increase, while
education suffers in the state.
By removing the MOE, the Medicaid program
can still be in place and also allow the states to
modify their programs. This is not to say that the
Medicaid program must be removed altogether;
however, the state would be able to control the
amount of increased spending. Since New
Hampshire provides a long list of “optional”
http://online.wsj.com/article/SB10001424052748704758904
576188280858303612.html
24
“Congress and the Affordable Care Act,” Health Affairs and
Robert Wood Johnson, February 25, 2011,
http://www.rwjf.org/files/research/71968.pdf
services, these could face the possible budget axe
first. Some of these programs, such as psychology,
wheelchair vans, speech therapy, and others could
face budget changes since these services are not as
critical to the state’s wellbeing.25 The main problem
with this provision is that it does not allow the state
to decide what is in its best interest. Instead,
authority is centralized in the federal government.
Since the market is always changing, it would make
sense for New Hampshire to be able to maintain
control over its own budget when they are in need
of savings instead of debt. As Nina Owcharenko of
the Heritage Foundation believes, “Federal health
care reform should include a strong state component
that provides additional federal flexibility so that
states can better tailor reforms to fit the needs of
their citizens”26
With the MOE in place, the states only have few
options which will likely harm the patients.
Reimbursement rates are already low, resulting in
diminished quality of care and the low rate of
doctor acceptance of Medicaid patients. The
administration understands this problem and is
going in the wrong direction to improve it. Instead
of allowing the states to be able to change the
reimbursement rates on their own to deal with
deficit problems, the administration has proposed
removing this authority from the states27 so they
those who are about to go on the Medicaid rolls will
not have problems finding a doctors, which will
cost the state and federal government more money .
In order to remove the MOE requirement,
states must petition the federal government and ask
for an exemption. By being exempt from the MOE,
New Hampshire will be able to reduce the Medicaid
spending while not having to decrease funding for
elementary and secondary education.
25
New Hampshire Medicaid Annual Report, 2009
26
Nina Owcharenko, “Restarting Health Care Reform: A New
Agenda, “The Heritage Foundation Webmemo, March 21,
2011 p. 2
27
Robert Pear, “Rule Would Discourage States’ Cutting
Medicaid Payments to Providers,” The New York Times, May
2, 2011,
http://www.nytimes.com/2011/05/03/us/politics/03medicai
d.html?partner=rss&emc=rss
Remove Individual Mandate
In order for health reform to work, removing the
individual mandate is a must.28 This was first
mentioned when the ACA began to come under fire
by attorneys general. The administration wants to
achieve the goal of covering almost all Americans
with health insurance; however, removing the
mandate will undermine that aim. But with the
mandate, more people have coverage at the expense
of the state and taxpayers. Also, not every American
requires health insurance, such as many young and
healthy individuals. With the mandate, these
individuals are required to purchase insurance or
pay a fine. Businesses are subject to fines if they do
not provide certain options for coverage for their
employees, which will impact them via reduced pay
or higher unemployment among young Americans.
The mandate has been already affecting
businesses across the country, resulting in “mini-
med” plans being dropped. As typically happens,
larger industries lobby the federal government for
waivers from this program. Recently updated, the
amount of waivers granted by the Department of
Health and Human Services (HHS), has reached
1,040.29 Because of this, small business will be
forced to pay for the mandate while larger
businesses will not, causing damaging effects to the
small businesses.
Opt-Out of Medicaid
The option to stop participation in Medicaid is a
drastic possible solution to state budget problems.
While the ACA has the MOE provision, states are
not required by federal law to administer the
Medicaid program. With the changes to the
28
Jonathan Gruber, “Health Care Reform Without the
Individual Mandate,” Center for American Progress, 2011,
http://www.americanprogress.org/issues/2011/02/gruber_m
andate.html
29
Jason Millman, “Number of healthcare reform law waivers
climbs above 1,000,” The Hill: Health watch,
http://thehill.com/blogs/healthwatch/health-reform-
implementation/147715-number-of-healthcare-reform-law-
waivers-climbs-above-1000
Medicaid program, Washington is gaining control
over state budgets and is forcing them to spend
money on programs they may not need or want.
According to the Heritage Foundation’s Edmund
Haislmaier and Dennis G. Smith, New Hampshire
could save 1.45 billion dollars over 6 years by
opting out of the Medicaid program.30
New Hampshire is now weighing the option of
opting out of Medicaid due to budget deficits and
the looming reform that will be put into place by the
Patient Protection and Affordable Care Act.
Democratic governor John Lynch may veto the
legislation that has passed in New Hampshire which
would have the state deny $666,000 in federal
money to help establish an insurance exchange in
the state.31
Medicaid Block Grant
By converting Medicaid to
a block grant, it will help
control the cost to states and “Federal health care reform should include a Conclusion
also reduce the amount of strong state component that provides additional
fraud in the program. The federal flexibility so that states can better
program today encourages tailor reforms to fit the needs of their citizens”
perverse incentives for the
states to increase services
because they will receive
additional federal funds. When the states are in
trouble, they can appeal to the government for a
bailout, as the ARRA provided, and no
accountability is put in place.
The structure of Medicaid reimbursement to the
state allows fraud to run rampant through the
system. One way in which spending is increased by
perverse incentives is known as “Medicaid
maximization.” This is done by state run hospitals
reporting to the federal government an
overestimation of spending on Medicaid services,
which causes the federal government to overpay
30
Dennis G. Smith and Edmund F. Haislmaier, “Medicaid
Meltdown: Dropping Medicaid Could Save States $1 Trillion,
The Heritage Foundation:Web Memo, December 1, 2009,
http://s3.amazonaws.com/thf_media/2009/pdf/wm2712.pdf
31
“Obamacare Opt Out”, The Wall Street Journal,
http://online.wsj.com/article/SB1000142405274870
when they match the state’s spending. Then, the
state run hospital use an intergovernmental transfer
(IGT), and send the excess funds back to the state
government so the funds can be used in other areas
of the budget.32 This abuse of the system has
generated millions of extra dollars for the states to
pay for other programs. This must be dealt with
since fraud plays a major role in Medicaid
spending. Along with the reduction in the ability for
states to benefit from the payment program, a block
grant will also help the federal government and state
governments to be able to budget appropriately for
their Medicaid program.33
A block grant has been proposed by numerous
health policy experts as well as Representative Paul
Ryan (R-WI).34 This option seems to be the most
viable policy alternative to the ACA. The block
grant is the best way to keep power decentralized
and allow the states to have freedom to operate to
meet their own needs.
States are struggling with
their own budget priorities.
--Nina Owcharenko Unlike the federal
government, state
governments cannot print
more money in order to balance budgets. When the
arms of the states are tied as a result of being told
what they can and cannot cut, unintended
consequences occur—such as cutting back
programs like education. In the state of New
Hampshire, elementary and secondary education are
frequent victims of centralized power in
Washington. Clearly, the state of New Hampshire
32
Katherine G. Allen, “States’ Efforts to Maximize Federal
Reimbursements Highlight Need for Improved Federal
Oversight,” Government Accountability Office, June 2005,
http://www.gao.gov/new.items/d05836t.pdf
33
Douglas Holtx-Eakin and Michael Ramlet, “A New Vision for
Medicaid,” American Action Forum,
http://americanactionforum.org/sites/default/files/A%20Ne
w%20Vision%20for%20Medicaid%20The%20FLEX%20Strateg
y.pdf
34
Paul Ryan, ‘Path to Prosperity,” House Committee on the
Budget, 2011
should be the one to decide what its residents need
and provide those services based on what they can
afford and not be subject to rules and regulations
coming from the national government that cover all
the states equally as if their interests are equal. New
Hampshire is relatively fiscally sound, and
economically freer than any state in the country;
why jeopardize that freedom and wellbeing based
on interests of other states or the political power
gained in Washington? The reason for this fiscal
wellbeing and freedom is the decentralization of
power and fiscal decision making35, which is clearly
contrasted with the methods that the ACA tend to
employ. If New Hampshire hopes to maintain its
sovereignty, it must stay true to its motto and “live
free or die.”

35
William p. Ruger & Jason Sorens, “Freedom in the
50 states an index of personal and Economic freedom,” 2009
 New Hampshire Medicaid Spending
The New Hampshire Medicaid program has grown to become the largest expense for the state. Medicaid
became the largest items in 2004 where it surged past elementary and secondary education. During that
same time period, the percent of state spending for Medicaid passed the elementary and secondary
36
education and now accounts for 26.5% of total state spending

1600
E & S Ed
1400
Higher Ed
1200
Cash Assist
1000
800 Medicaid

600 Corrections
400 Transport
200
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

45.0%
E & S Ed
40.0%
35.0% Higher Ed
30.0% Cash Assist
25.0% Medicaid
20.0% Corrections
15.0%
Transport
10.0%
5.0%
0.0%

36
Note: Numbers include federal funds
Source: State expenditure reports from the National Association of State Budget Officers