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Legislators must decide this session whether expanding Medicaid to cover more low-income Iowans makes sense for the state.

Democrats say that besides being the right thing to do from a human services perspective, the move would benefit Iowa fiscally because the federal government would pay a larger share than it does now. Republican leaders are leery of that claim, fearing the federal government will be unable to keep its promise to fully fund the program for the initial three years.

Under provisions of the federal health-care overhaul, states have the option to expand Medicaid to people whose incomes are below 133 percent of the federal poverty level. In Iowa, an estimated 122,900 additional low-income adults would be covered under the Medicaid program. Currently, more than 400,000 Iowans are covered by Medicaid. If enacted, it would ensure that those who earn less than $15,415 a year can obtain Medicaid coverage.

Because most Iowans get their health insurance through their employers, expanding Medicaid eligibility would make “a heck of a lot of sense for businesses in Iowa,” said Democratic Sen. Mike Gronstal, the Senate majority leader. “Right now, businesses in Iowa pay for one hell of a lot of charity care,” Gronstal said, noting that costs for uninsured patients are passed along by insurers through higher premiums.

According to the Iowa Hospital Association, whose board supports the Medicaid expansion, Iowa hospitals currently provide more than $600 million in charity care each year and incur an additional $350 million in bad debt when patients are unable to pay, largely from uninsured or underinsured Iowans.

“Medicaid expansion is simply the easiest and most cost-effective manner to provide health insurance coverage to Iowa’s working poor,” the association said in a recent policy brief.

Iowa hospitals already have experienced a decrease in Medicare reimbursement reductions, with the understanding that the federal government would use those savings to offset the cost of expanding Medicaid. Reductions in Medicare reimbursements to Iowa hospitals will total more than $2.3 billion over the next 10 years.

Under the federal Patient Protection and Affordable Care Act, the federal government has pledged to pay 100 percent of the cost for each state’s Medicaid expansion from 2014 through 2016, and then phase down its cost share to 90 percent by 2020.

“The federal government said it might fund (the expansion) for the first couple of years, but after that they’re not,” said Iowa House Speakeer Kraig Paulsen. “That’s a promise we can probably rely on; if they say they are not going to fund something, they’re probably not. The growth in both the dollar amount and percentage of budget for Medicaid is really starting to impact other parts of the state budget. We’ve got to balance that against education.”

Two independent national studies of the potential effect of the expansion say that Iowa would achieve a net savings from expanding its Medicaid program, provided the federal government keeps its part of the bargain.

A report issued by the Kaiser Family Foundation in November estimated that Iowa would spend about $32 million less annually, because many of the 70,000 people now covered by IowaCare, a Medicaid waiver program that ends on Dec. 31, 2013, would be covered under the expansion. The state pays 40 percent of the cost of IowaCare; it would pay nothing for the first three years for those covered under the expanded Medicaid program.

Based on an analysis of another report, by consulting group Milliman Inc., the state would save an amount comparable to the Kaiser estimate – at least $282 million in the eight-year period through 2020 – by approving a Medicaid expansion, said Charles Bruner, executive director of the Child and Family Policy Center in Des Moines. “Plus it makes it possible for hospitals to contain their costs – and it helps us to better implement mental health reform,” he said.

In his experience, Bruner said, the federal government actually has a good track record when it comes to keeping its promises on Medicaid funding to the states.

“Obviously, there are debates over the federal deficit and what to do about it, and that could have significant impacts on our state,” he said. “But Medicaid certainly wouldn’t be the dominant piece of (potential cuts) going forward. I think we’re on very sound ground for that expansion.”