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Without Medicaid expansion, counties will pay medical bills for poor

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In 1879, Minnehaha County commissioners started plans to build a poorhouse, a government-run facility to support the needy.

Soon after, land was purchased and a poor farm was established. It was one of the first of its kind in the state, and it was a place for people who needed medical and financial care. But they were required to work to the extent that their health allowed by raising livestock, grain and produce for their own consumption.

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“There is a very, very long tradition of local governments, specifically county governments, of caring for the low income,” said Robert Burns, a retired South Dakota State University political science professor. “That tradition of county government involvement with the poor certainly preceded state and national government engagement.”

Many states began relying on county governments to care for the poor early in their history, according to a U.S. government report from 1904 that summarizes various poor laws at the time. The report explained South Dakota’s county commissioners back then were “the overseers of the poor” and had “the duty of caring for all indigent persons lawfully settled therein.”

After the Great Depression and the Dust Bowl of the 1930s, the counties’ longstanding responsibility for care of the poor was formally enshrined in state law. A 1939 measure that remains in force today stipulates counties’ duty to relieve and support the poor if no other means is available.

What started out as a way to shelter the poor and put them to work has mushroomed into millions of dollars in annual outlays by county governments. Last year in South Dakota, counties paid at least $3.3 million in total costs for people deemed indigent — in other words, too poor to pay their own bills. About $2.5 million of that was spent on medical care that might have been covered by the federal-state Medicaid program, if the indigent people who incurred the costs qualified under a proposed Medicaid expansion. The indigent costs that would not be covered by Medicaid include burials, ambulance services and some medical equipment and supplies.

Minnehaha County, home to Sioux Falls, spent $500,000 last year on indigent medical expenses, which was the largest amount spent by any county in the state. Davison County, home to Mitchell, spent $191,000. Those expenses ultimately fall on county residents, whose property tax payments are the primary funders of county governments.

An expansion of Medicaid is included in President Barack Obama’s Patient Protection and Affordable Care Act, also known as “Obamacare.” Under the expansion, people up to 138 percent of the federal poverty level would qualify for Medicaid, which is health insurance for the needy. States run their own Medicaid programs but fund them jointly with the federal government. Currently, in South Dakota, Medicaid eligibility ends at about 50 percent of the poverty level and is only for adults with dependent children. Childless adults have no Medicaid eligibility.

If South Dakota expands its Medicaid program, an estimated 30,000 additional South Dakotans would become eligible. Presumably, it’s many of those 30,000 people who are driving up counties’ indigent medical care costs. They’re people who do not currently qualify for Medicaid and also may not be able to afford private insurance, so the county is their de facto insurer.

So far, South Dakota’s political leaders have chosen not to expand Medicaid, but it’s likely to be considered during the legislative session that begins next month.

“If Medicaid were to be expanded to cover all-low income citizens up to 138 percent of the poverty level, that would certainly relieve counties of those burdens,” Burns said.

Expansion of Medicaid

Originally, the Affordable Care Act required Medicaid’s expansion, and states that did not comply risked losing all of their federal Medicaid funding. But the U.S. Supreme Court in June 2012 ruled that the federal government could not withhold those funds if states did not expand Medicaid. As a result, states have been given the choice to expand or decline expansion annually.

Under the Medicaid expansion, all people earning up to 138 percent of the poverty level would be eligible. That includes single people earning up to $15,451 and families of four earning up to $31,809.

The federal government would cover the costs added to Medicaid’s rolls from 2014 through 2016, and the state’s contribution would rise in stages to 10 percent of the costs by 2020.

In states that do not expand Medicaid, some people may find their income is too high to qualify for Medicaid, and also too low to qualify for new health insurance subsidies provided by the Affordable Care Act.

South Dakota Association of Healthcare Organizations President and CEO Dave Hewett, who is based in Sioux Falls, explained that under the Affordable Care Act, people with incomes from 100 to 400 percent of the federal poverty level qualify for health insurance premium subsidies — financial support — when purchasing insurance through the new ACA exchanges.

Because the threshold for premium subsidies is 100 percent of the poverty level and the threshold for Medicaid in South Dakota is about 50 percent of the poverty level, those who fall between the two levels are left out.

“And in a bizarre sort of way, they aren’t eligible for anything and county poor relief is their only option,” Hewett said.

They would be eligible for Medicaid if the state decides to expand the program, as was intended by the Affordable Care Act.

Without a Medicaid expansion, counties face continual outlays for poor relief that are difficult to budget for, because it’s unknown when an indigent person might turn up with a large medical bill. In 2009, for example, a Mitchell man with no insurance racked up medical bills of more than $500,000 that were sent to the county when he was declared indigent, though the county was later able to get the bills reduced to $68,000.

And just because the state hasn’t opted in to the Medicaid expansion, that doesn’t mean South Dakota residents are not paying for it.

Joy Smolnisky, director of the South Dakota Budget and Policy Project, a nonprofit, nonpartisan organization, has researched the possible effects of Medicaid expansion in the state and spoke at two of the governor’s Medicaid task force meetings this year.

She said everybody who pays federal income taxes is funding the national Medicaid expansion, whether their state opts into it or not.

“The federal portion of the liability of that will be spread across citizens in all states, regardless of whether or not they expand Medicaid,” Smolnisky said. “Basically, all U.S. citizens will participate in the federal funding of that, depending on how they fall under the tax structure.”

South Dakota’s decision

South Dakota Gov. Dennis Daugaard told state lawmakers during his budget address earlier this month that he is not recommending the Medicaid expansion. He said the federal government is having trouble putting the Affordable Care Act into effect, as evidenced most noticeably by the rampant problems with the website for the new health insurance exchanges. He also wonders whether the federal government can meet its pledge to pay most of the cost of expansion, given federal budget deficits.

Through 2020, Medicaid expansion in South Dakota alone would cost the federal government a total of more than $2 billion, according to the state Department of Social Services. From 2014 through 2020, the state cost would be a total of about $102 million, or about 5 percent of the total expansion.

“The governor is very concerned about expanding the Medicaid program at a time when the federal government’s budget turmoil makes long-term federal support of the expansion uncertain,” said Tony Venhuizen, an aide to Gov. Daugaard. “He is also reluctant to expand Medicaid when the federal implementation of Obamacare, so far, has been very chaotic and unpredictable.”

Measures seeking to expand Medicaid in South Dakota could be introduced in the legislative session that opens Jan. 14, but lawmakers likely won’t make a final decision until late in the session when they pass next year’s state budget.

Smolnisky explained an expansion would take about six months to fully roll out. She said lawmakers could put Medicaid’s expansion into the budget, but Daugaard would have the option of a line-item veto. The Legislature could override Daugaard’s veto with a two-thirds majority in both the House and the Senate, but that’s unlikely to happen since the overwhelming majority of the Legislature is Republican, like Daugaard.

Nationwide, there are 26 states and the District of Columbia that have chosen to expand Medicaid. Four are undecided, and 20 — including South Dakota — are not immediately expanding. In all 20 of those states, the governor is a Republican.

‘Impacts every county’

South Dakota law states it is each county’s duty to relieve poor and indigent persons who have established residency and have made application to the county.

“County poor relief has been the only public program besides Medicaid to provide coverage for certain low-income individuals,” Hewett said. “It was formed for medical systems that have long since passed. It generates a huge amount of paperwork, and I think everyone agrees that it’s a program that should and could go by the wayside if the state would expand eligibility for Medicaid consistent with the Affordable Care Act.”

Smolnisky began researching Medicaid’s expansion in June 2012 when the Supreme Court ruled the expansion would be a state-by-state decision. She said when she talks with people around the state about South Dakota choosing not to expand Medicaid, they fail to understand “how it excludes the poorest of the poor uninsured from any access of insurance.”

“There are South Dakotans in every single county who will be directly impacted who are uninsured now and will remain uninsured because of a decision not to expand Medicaid,” Smolnisky said. “This isn’t a problem or a benefit to impact one or three counties in the state. This impacts every county.”

‘That ability to pay formula’

Medically indigent people are those who require hospital services and have no public or private third-party coverage — such as private insurance, veterans’ assistance, Medicaid or Medicare — to cover the cost of hospitalization. They are people who do not have the means to pay their medical bills and meet certain criteria. For example, if a person chooses not to work but is able, that person cannot be declared indigent. Indigents also cannot be students at post-secondary universities who choose not to acquire health care coverage.

Minnehaha County Director of Human Services Carol Muller said that after a person goes to the hospital and receives medical assistance but does not have the means to pay for the service, the hospital sends the county a notification of hospitalization letter within 15 days.

Then, the person has two years to file an application with the county to qualify as an indigent. If the person qualifies, the county pays the lower of two rates for the person’s medical care: a rate set by the state Department of Social Services, or a rate that the hospital agrees to reduce below normal rates.

“It all comes down to that ability to pay formula,” Muller said of who qualifies as indigent. “There are so many variables that come into this. If I have 100 people who come in and all of them are under the federal poverty level, and 75 just choose not to work, then they (those 75) don’t qualify as an indigent person. We stop right there.”

Muller said Minnehaha County’s 2012 medical indigent expenses of about $500,000 were “a little lower than usual.” She said the expenses totaled $731,000 in 2010 and $564,000 in 2011.

‘A lot of that won’t be collected’

South Dakota law says any indigent person who receives financial assistance is required to enter into a contract for the repayment of all or part of the assistance received. A lien becomes effective on the person’s property until the full amount is reimbursed to the county.

Davison County Register of Deeds Deb Young said liens that are filed for indigent medical services are coded as care-of-poor liens. In Davison County, the amount of care-of-poor liens still outstanding from liens filed since 1970 is $3.092 million.

“I bet a lot of that won’t be collected,” Davison County Commissioner Randy Reider said. “I think that indicates to people some of the items the county commissioners and county employees have to deal with.

“We are required and obligated to help people and there can be a lot of costs, so realistically many of those dollars will never be collected. A good question to look at is, how do you help those people become self-sufficient and help them move forward?”

Dr. Daniel Heinemann, of Canton, is president of the South Dakota State Medical Association. He was in Mitchell on Wednesday to meet with local doctors who make up the Mitchell District Medical Society and to discuss issues in health care for the 2014 legislative session, including Medicaid expansion. His organization is in favor of an expansion.

Heinemann is concerned about people in the state who can’t afford health insurance and who won’t be eligible for Medicaid without the expansion.

“What’s going to happen is what’s happened in the past,” he said. “Those folks will need health care. They’ll show up in an emergency room or a physician’s office, they get the health care, and they can’t afford to pay for it, so they don’t. Then we all pay for it in the long run.”

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