Expensive Medicaid Report Relies on Unrealistic Poverty Projection

The Alexander Group, a consulting firm that the LePage administration paid over $900K (using state and federal funds) to produce a report on the feasibility of expanding MaineCare/Medicaid under the Affordable Care Act, claims that Maine taxpayers will shell out $15.3 billion dollars over the next ten years if Maine chooses to accept federal funding to provide health insurance to tens of thousands of low-income Mainers.

But the Alexander Group’s report estimates that Maine taxpayers will pay almost as much— $14.5 billion dollars over the same period— if the state does not accept federal funding to provide health insurance. Maine taxpayers would only save $807 million over ten years if we refuse to accept the money from the feds. That’s not very much compared to the more than $30 billion we’re likely to spend over the next ten years in the state’s General Fund alone, never mind the rest of state and local government. More importantly, though, it’s a small price to pay to unlock more than $6 billion in federal funding for health care over the same period, according to the report.

One should also view that $807 million 10-year price tag—the difference between the two scenarios—with a hefty dose of skepticism since it relies on a few bold predictions that may or may not come true. For example, the report foresees working Mainers who currently receive their health coverage through their employer switching to MaineCare en masse. Partly as a result, their findings predict well over 100,000 new people signing up for MaineCare, compared to 70,000 forecast by MECEP.

But forget for a moment about the difference between the costs of the two scenarios–accepting or rejecting federal funding– and look at the trajectory of them both. The Alexander Group sees total (federal and state funding combined) costs on Medicaid/MaineCare rocketing into the stratosphere over the next ten years. Again, as with any economic or fiscal modeling exercise, the underlying assumptions have major impacts on the results. Like some other commentators, I’d like to focus here on the Alexander Group’s dubious and scary projection of poverty growth in Maine over the next ten years:


As you can see in the green line in the chart, the Alexander Group sees the ranks of the poor in Maine growing inexorably into the future, by nearly 60,000 people (31.5%) over the next ten years. That’s a terrifying growth rate, especially on such a high base — the poverty rate right now is higher than it’s been in more than twenty years, due mostly to the Great Recession and weak recovery. I wasn’t able to find a corresponding population forecast in the Alexander Group report, but using the Governor’s Office of Policy and Management population forecast, the implied poverty rate being forecast by the Alexander Group is over 18%—higher than it’s been at any point since the 1960s.

The Alexander Group report authors defend this forecast by claiming that it is simply an extension of the recent trend—poverty in Maine is rising, after all. The only problem is that poverty has been rising recently because of the worst recession since Great Depression and the terribly slow recovery from that disaster. The report’s authors claim to have resolved this issue (page 34 in the report):

The growth in poverty cannot be fully explained by the last economic recession. In order to reduce the skewing of data due to the impact of economic recessions, two dates were chosen at similar points along the business cycle: 2000 and 2007. These dates are immediately before the peaks of the business cycles. The SAIPE data for 2000 was collected prior to the 2001 recession that began month after the peak of March 2001, and the SAIPE data for 2007 preceded the recession that began the month after the peak of November 2007.

The problem with this reasoning is that most people never really recovered from the recession of 2001, and although the economy was, from a technical perspective “expanding” from 2002 to 2007, it was a very weak and illusory expansion fueled by a massive housing bubble and Wall Street recklessness. As shown in our recent report State of Working Maine in 2013 the 2000’s were a lost decade in terms of wages and income for most Mainers.

Perhaps the Alexander Group is right, and poverty will keep climbing over the next ten years, even as the economy slowly but steadily begins to recover from the Great Recession. Or perhaps their poverty forecast relies on another economic depression in the offing. Either way, let’s hope they are wrong. If their forecast is correct, paying $807 million over the next ten years to provide health insurance for the most unfortunate Mainers will be the least of our worries.