Obamacare Could Improve Prisoner Healthcare and Save States Money

Medicaid provided coverage for over 72 million individuals in 2013 at the cost of more than $262 billion, and is expected to cover an additional 7 million people in 2014. Although healthcare has been at the center of national policy debates for the last several years, there is one group of beneficiaries that remain largely outside the discussion – prisoners. According to the Government Accountability Office (GAO), an independent agency tasked with overseeing congressional policies, Medicaid expansion under the Affordable Care Act – commonly known as Obamacare – may improve the quality of health care for prisoners and save states money.

As more states, most recently Pennsylvania, decide to expand Medicaid, more inmates in state and local corrections facilities are becoming eligible for the program. The GAO estimates that the majority of inmates in states with expanded Medicaid eligibility are likely to meet the new income requirements – in some states, as many as 80-90% of inmates may qualify, up from as few as 2%.

Federal law generally prohibits states from using Medicaid funds to pay for prisoners’ health care. However, there is one exception: Medicaid funds can cover inpatient care for otherwise eligible inmates admitted to hospitals for a day or longer – the “inpatient exception.”

Obamacare does not change the restrictions on using Medicaid funds for prisoner care. However, it significantly increases the number of inmates eligible for the inpatient exception by expanding general Medicaid eligibility. Prior to the Affordable Care Act, eligibility for Medicaid was limited to certain categories of low-income individuals, including pregnant women, children, and disabled or elderly persons. The Act gives states the option to expand Medicaid eligibility to include all individuals with incomes up to 133% of the federal poverty level, including prisoners.

The inpatient exception is infrequently used because many states automatically terminate Medicaid enrollment upon incarceration. Under federal law, inmates who continue to meet eligibility requirements are allowed to stay enrolled in Medicaid, but states are permitted to suspend enrollment during incarceration. The Centers for Medicare and Medicaid Services (CMS) encourage states to suspend rather than terminate inmates’ enrollment for a number of reasons.

First, although policies for billing inpatient care to Medicaid vary state by state and some states that terminate enrollment upon incarceration still receive Medicaid reimbursement for inpatient care, states that suspend enrollment are better prepared from an administrative standpoint to make use of the inpatient exception. Additionally, once enrollment has been terminated, inmates who wish to receive Medicaid benefits during or post incarceration must re-apply. Some states do not accept applications from incarcerated individuals, barring prisoners from re-applying until after release and creating a gap in coverage that can increase recidivism. This is often the case regardless of how long an individual is incarcerated — a one-month stay in prison could result in as much as three months without healthcare upon release. Even though Medicaid can be applied retroactively in some cases, these individuals often have to rely on hospital emergency rooms for medical care while they wait for their eligibility to be reinstated, which places additional financial burdens on hospitals and state and local agencies.

The Affordable Care Act also increases federal matching funds. States that expand Medicaid will receive full reimbursement for all newly eligible individuals for the first three years, and will receive enhanced reimbursement after that. The enhanced federal matching rates and increased inmate eligibility may encourage states to implement new policies that allow them to use Medicaid funding for prison populations. The GAO found that the ability to shift some health costs to the federal government has already led states expanding Medicaid to adopt administrative changes that may improve prisoner health care and increase post incarceration enrollment levels. State efforts to increase Medicaid reimbursements include training prison staff to assist with inmate enrollment, upgrading the technology used in enrollment systems, and suspending, rather than terminating, Medicaid enrollment upon incarceration.

The GAO predicts that, while the percentage of inmates in state prisons receiving treatment under the inpatient exception will increase with Medicaid expansion, inmate-related expenditures will still remain a very small portion of federal Medicaid expenditures. For example, in California, where almost 10% of the country’s 1.4 million state prisoners reside, less than 5% of inmates received inpatient care in 2013. Only half of those inpatient visits qualified for Medicaid matching funds, and federal funding for inmate services accounted for only 1% of the federal funds California received for inpatient care for all beneficiaries. Based on data the GAO collected from previous years, inmate-related expenditures on the federal level are unlikely to increase much under Medicaid expansion because a small number of inmates generally require inpatient care.

Although increases in federal spending on inmate care will likely be very small, the savings for state and local corrections departments providing health care for inmates may be much more significant. State spending on inmate health care increased as much as 90% in most states between 2001 and 2008, and accounted for as much as 33% of all institutional corrections spending. The GAO also found that some smaller counties did not obtain any federal Medicaid funds for inpatient care for inmates prior to Medicaid expansion, because the administrative costs of enrolling the small number of eligible inmates exceed the federal matching funds.

With healthcare costs on the rise, corrections departments in states not expanding Medicaid may think twice before transporting inmates that may not be eligible for federal reimbursement to outside facilities for treatment. Some states, like Pennsylvania and Virginia, have offset their inpatient costs for Medicaid-ineligible inmates through disproportionate share hospital (DSH) funds – additional federal Medicaid funding for hospitals that disproportionately serve uninsured and Medicaid patients.

For example, in 2003, CMS found that Pennsylvania had made $3 million in DSH payments – down from $8.3 and $6.3 million in the previous two years – to cover inpatient costs for “uninsured” inmates of state correctional institutions. CMS had issued a policy clarification in 2002 explaining that, because the Eighth Amendment of the U.S. Constitution requires states to cover inmates’ medical care, inmates are not “uninsured” and states therefore “cannot make DSH payments to cover the costs of their care.” In 2009, CMS again audited the use of DSH funds in Pennsylvania and found that the state had used Medicaid funding for ineligible inmate care provided at state-operated institutions for mental diseases. In 2011, the Pennsylvania state legislature passed a law setting its own criteria for determining DSH-eligible inpatient care, and received approximately $534,000 in federal Medicaid funds to cover inpatient care for inmates who were ineligible for Medicaid.

Some have argued that resorting to DSH payments for inmate care is not an optimal mechanism for shifting costs to the federal government because a large portion of DSH costs is never reimbursed, leaving overburdened public hospitals financially responsible. States are responsible for ensuring that hospitals are reimbursed in accordance with limits set by the federal government, but state-level accounting problems and incomplete reporting from hospitals often lead to many DSH payments going uncompensated.