1920 N Street NW Suite 400 Washington, DC 20036-1659
T 202.833.6400 www.segalco.com
MEMORANDUM
To:
Sarah Gill
From:
Cathie Eitelberg, National Director, Public Sector Market
Rocky Joyner ASA, MAAA, FCA, EA
Bryan Clubb, Actuarial Analyst
Date:
April 29, 2016
Re:
Estimated Offset Medicaid Cost Based on Increased Retirement Savings
Retirement Security for many seems an impossible dream. Over the past several years a number
of states have looked at how to make retirement less of a dream and more attainable by creating a
path to workplace retirement savings and/or access for individuals to a retirement plan
marketplace.
Nearly half of America’s private-sector workers do not have access to a
workplace retirement saving arrangement.
U.S. WORKERS: Does your employer offer a
pension or retirement plan?
Yes
51%
No
49%
Source: Analysis of Source: U.S. Census Bureau Current Population Survey (CPS), March 2014 Supplement
Study after study demonstrates that having access to a retirement saving plan at the workplace
and contributing through payroll deduction is an effective way for workers to build retirement
savings. California, Illinois, Oregon, Connecticut, Maryland and Massachusetts are at varying
stages of establishing workplace payroll deduction individual retirement account (IRAs) plans.
The U.S. Department of Labor has issued proposed regulations that provide guidance on how a
state-administrated payroll deduction IRA can comply with Federal requirements 1. Washington
and New Jersey are setting up marketplace websites to facilitate retirement savings.
1
Federal Register Volume 80, Number 22, November 18, 2015/http://www.gpo.gov/FR Doc No:2015-29426,
Department of Labor, Employee Benefits Security Administration, 29 CFR Part 2510, RIN 1210-AB71, Savings
Arrangements Established by States for Non-Governmental Employees
Benefits, Compensation and HR Consulting. Member of The Segal Group. Offices throughout the United States and Canada
Page 2
Under the payroll deduction IRA programs, private-sector employers, who do not offer a
retirement plan, are required to enroll their employees in the state-sponsored plan. The
employee, however, can opt out. Again, studies show that a vast majority of individuals who are
automatically enrolled do not opt out and continue to participate in workplace retirement saving
plans thereby accumulating retirement funds. As states look at programs to build retirement
savings, they are also asking how a population better prepared for retirement would affect
safety-net programs. Medicaid continues to be a major and growing piece of state budgets2 and
the program in which there is the most interest in estimating potential savings.
Potential Savings for States
To look at the issue of Medicaid savings, Segal Consulting conducted an analysis of all states to
estimate the impact of expanded retirement savings by individuals not currently participating in a
retirement plan on future Medicaid expenditures. There are different pathways for a person over
the age of 65 to become eligible for Medicaid and they vary by state. This is a conservative and
limited analysis of potential savings and does not factor in all the states’ eligibility nuances for
Medicaid. Nor does it assume that Medicaid will never be accessed because of the increased
savings but that eligibility may only be delayed. Segal has produced an actuarial model that
utilizes available Medicaid data, savings rate data, and current census data by income level to
estimate the impact of increased savings on Medicaid participation rates at retirement. The result
of the analysis showed a positive correlation between increased retirement savings and a
reduction in Medicaid coverage rates.
The following is a brief overview of each component of the data and the manner in which they
were used to produce the estimate of total Medicaid savings by state.
Census Data
Household census data for each state came from the March 2014 supplement of the Current
Population survey conducted by the United States Census Bureau3. For each state, age and
income information on households of private sector workers whose employer did not offer a
retirement plan was collected. Households less than 22 years of age or $20,000 of annual income
were assumed to be part-time workers and excluded for the calculation.
Medicaid per Capita Cost
In order to calculate potential Medicaid savings through a retirement plan, an average cost to the
state of each Medicaid enrollee over the age of 65 was estimated for each state. State-by-state
Medicaid spending4, enrollment data5, and the ratio of each state’s spending on Medicaid relative
to the Federal government6 were collected from government Medicaid and Health and Human
Services sources. In order to isolate the Medicaid cost to only retired enrollees over 65, the
2
NASBO State Expenditure Report. November 19, 2015.
https://www.nasbo.org/sites/default/files/Summary_State%20Expenditure%20Report.pdf
3
Current Population Survey (CPS), March 2014 Supplement. http://dataferrett.census.gov/
4
Total Medicaid Spending. FY 2014. http://kff.org/medicaid/state-indicator/total-medicaid-spending/
5
Total Medicaid Enrollees. March 2014. https://www.medicaid.gov/medicaid-chip-program-information/programinformation/downloads/cms-64-medicaid-enrollment-report.pdf
6
FY 2014 Federal Medical Assistance Percentages. https://aspe.hhs.gov/basic-report/fy2014-federal-medical-assistancepercentages
Page 3
proportion of Medicaid spending7 and enrollment8 taken up by aged retirees (rather than children
or disabled adults) was retrieved from the Kaiser Family Foundation. Using these 5 pieces of
information, a rough elderly Medicaid cost per capita to the state was determined through the
following formula:
(𝑇𝑜𝑡𝑎𝑙 𝑠𝑡𝑎𝑡𝑒 𝑀𝑒𝑑𝑖𝑐𝑎𝑖𝑑 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔) ∗ (𝑆𝑡𝑎𝑡𝑒 𝑓𝑢𝑛𝑑𝑒𝑑 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒) ∗ (𝑆𝑡𝑎𝑡𝑒 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑛 𝑡ℎ𝑒 𝑒𝑙𝑑𝑒𝑟𝑙𝑦)
(𝑇𝑜𝑡𝑎𝑙 𝑠𝑡𝑎𝑡𝑒 𝑀𝑒𝑑𝑖𝑐𝑎𝑖𝑑 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑒𝑠) ∗ (𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑒𝑠 𝑡ℎ𝑎𝑡 𝑎𝑟𝑒 𝑒𝑙𝑑𝑒𝑟𝑙𝑦)
Estimate of the Impact on Medicaid Expenditures
Using a combination of census data, estimated per capita cost, and state Medicaid eligibilities for
childless adults, future Medicaid costs were estimated. First, a salary limit for Medicaid
eligibility upon retirement was calculated by taking the federal poverty limit (FPL) in 2014 and
multiplying it by the Medicaid eligibility, which is distinct for each state and reported as a
percentage of the poverty limit9. That number is then divided by an estimated Social Security
replacement ratio of 36% to yield a salary limit. In other words, the calculated salary limit to be
eligible for Medicaid upon retirement is the lowest salary that, when 36% of income is replaced
by Social Security, will put an individual at or below the Medicaid income eligibility limit. The
calculation of the salary limit is illustrated with the following formula:
𝑆𝑎𝑙𝑎𝑟𝑙𝑦 𝐿𝑖𝑚𝑖𝑡 =
𝐹𝑃𝐿 ∗ (𝑆𝑡𝑎𝑡𝑒 𝑀𝑒𝑑𝑖𝑐𝑎𝑖𝑑 𝑒𝑙𝑖𝑔𝑖𝑏𝑖𝑙𝑖𝑡𝑦 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒)
. 36
Once the salary limit for each state was calculated, the number of households from the census
data earning under the salary limit is tallied.
Using both the Medicaid per capita cost and the eligibility limits for households described above,
a potential savings cash flow was developed for each state.
Estimated Potential Medicaid Savings
The entire objective of the calculation was to estimate how much each state could potentially
save if a retirement plan was put in place for those not currently saving for retirement. If a
retirement program could remove a certain percentage of currently vulnerable households off the
poverty rolls by the time they retire, how much would the state reduce its Medicaid spending? A
successful retirement savings program would take time to implement fully and would thus have a
gradual, yet effective, impact on the percentage of households that retire poor enough to be
Medicaid eligible. We assumed such a program would incur savings starting at a modest 1%
reduction in spending for workers currently aged 64 (i.e. those retiring next year) and grading up
to 5% for workers currently aged 60 (those retiring 5 years from now).
The attached table illustrates the annual estimated decrease in Medicaid payments by state as
retirement income and participation in a retirement savings plan increases over the next 5 years.
7
Medicaid Spending by Enrollment Group. FY 2011. http://kff.org/medicaid/state-indicator/medicaid-spending-byenrollment-group/#table
8
Distribution of Medicaid Enrollees by Enrollment Group. FY 2011. http://kff.org/medicaid/state-indicator/distributionof-medicaid-enrollees-by-enrollment-group/
9
Medicaid Income Eligibility Limits for Adults as a percent of the Federal Poverty Level. http://kff.org/healthreform/state-indicator/medicaid-income-eligibility-limits-for-adults-as-a-percent-of-the-federal-poverty-level/
Page 4
Estimated Offset Medicaid Cost Based on Increased Retirement Savings
First 5-Year Savings for each year
Based on a 1% Medicaid Savings Assumption
Estimated Number of
Households no longer
relying on Medicaid
over a 5-year period
2016
2017
2018
2019
2020
Total Present
Value of the first 5
years of savings
Alabama
873
$109,613
$340,495
$704,976
$2,008,406
$3,730,717
$5,167,466
Alaska
122
73,297
227,684
471,406
1,349,381
2,509,541
$3,470,881
Arizona
686
185,626
576,617
1,193,853
2,057,576
3,192,202
$5,497,373
Arkansas
409
80,470
249,965
517,538
1,198,309
2,096,488
$3,124,951
California
5,428
3,028,051
9,406,139
19,474,866
30,980,017
46,060,889
$83,418,216
Colorado
1,045
605,043
1,879,464
3,891,322
7,401,367
12,021,131
$19,600,903
393
255,457
793,535
1,642,969
2,955,888
4,682,174
$7,866,359
53
10,761
33,428
69,210
299,771
604,936
$755,755
113
157,083
487,952
1,010,277
1,480,088
2,093,939
$4,019,791
Florida
3,535
1,231,853
3,826,547
7,922,644
12,031,437
17,408,332
$32,551,382
Georgia
972
153,185
475,844
985,208
2,581,624
4,689,960
$6,676,394
Hawaii
172
86,839
269,750
558,503
1,105,942
1,826,902
$2,918,946
Idaho
413
107,821
334,929
693,452
1,081,819
1,590,556
$2,918,730
Illinois
3,191
836,154
2,597,373
5,377,711
13,969,883
25,316,599
$36,147,855
Indiana
State
Connecticut
Delaware
District of Columbia
1,465
646,843
2,009,310
4,160,159
8,472,080
14,152,932
$22,309,618
Iowa
751
348,334
1,082,041
2,240,303
5,121,295
8,921,883
$13,367,587
Kansas
383
226,737
704,321
1,458,255
2,341,269
3,499,051
$6,298,373
Kentucky
816
290,427
902,164
1,867,879
2,689,349
3,761,743
$7,317,920
Louisiana
857
240,181
746,082
1,544,720
2,688,082
4,190,379
$7,175,484
Maine
230
82,218
255,397
528,786
859,186
1,292,552
$2,308,600
Maryland
589
352,870
1,096,131
2,269,476
4,304,958
6,983,850
$11,403,377
Massachusetts
673
373,450
1,160,060
2,401,838
5,101,652
8,660,455
$13,389,686
1,184
249,152
773,951
1,602,420
5,964,060
11,734,339
$15,133,278
Minnesota
535
275,069
854,455
1,769,099
4,258,440
7,543,896
$11,074,936
Mississippi
301
53,593
166,478
344,682
777,379
1,348,115
$2,031,104
Missouri
460
421,574
1,309,548
2,711,344
4,067,606
5,841,570
$11,019,184
Montana
192
120,296
373,679
773,681
1,203,793
1,767,163
$3,248,696
Nebraska
288
179,993
559,118
1,157,622
2,041,763
3,203,799
$5,443,454
Nevada
256
123,374
383,239
793,475
997,095
1,259,879
$2,756,705
New Hampshire
326
190,072
590,427
1,222,445
2,797,538
4,875,414
$7,301,549
1,534
1,169,579
3,633,104
7,522,132
11,903,749
17,646,176
$32,069,452
Michigan
New Jersey
New Mexico*
N/A
N/A
N/A
N/A
N/A
N/A
N/A
New York
2,927
2,869,925
8,914,944
18,457,877
28,070,634
40,650,899
$75,934,437
North Carolina
2,446
444,386
1,380,411
2,858,061
6,704,949
11,780,968
$17,468,888
North Dakota
78
65,846
204,541
423,491
667,692
987,696
$1,799,480
1,015
675,192
2,097,372
4,342,486
7,062,189
10,629,554
$18,974,143
$3,020,968
Ohio
Oklahoma
325
97,883
304,056
629,530
1,135,423
1,800,627
Oregon
268
205,403
638,050
1,321,045
1,866,454
2,577,720
$5,089,417
Pennsylvania
2,252
1,308,372
4,064,240
8,414,773
18,660,796
32,173,188
$48,816,874
Rhode Island
226
84,934
263,834
546,253
1,184,083
2,025,042
$3,102,884
South Carolina
849
202,681
629,595
1,303,540
2,165,789
3,297,452
$5,806,718
South Dakota
163
12,066
37,481
77,603
691,778
1,505,666
$1,708,634
Tennessee
1,131
540,442
1,678,794
3,475,845
4,502,386
5,832,009
$12,401,725
Texas
3,832
1,937,577
6,018,760
12,461,495
19,838,364
29,508,146
$53,413,623
Utah
314
88,427
274,685
568,719
1,229,253
2,100,121
$3,221,955
Vermont
135
24,998
77,653
160,777
355,284
611,790
$929,673
Virginia
875
426,914
1,326,137
2,745,691
5,067,228
8,121,153
$13,454,620
Washington
849
228,404
709,498
1,468,974
3,431,866
6,021,829
$8,943,919
West Virginia
296
155,738
483,773
1,001,625
1,283,572
1,648,331
$3,540,188
Wisconsin
1,079
366,067
1,137,125
2,354,352
5,610,598
9,907,852
$14,601,639
Wyoming
65
16,219
50,382
104,314
535,871
1,107,302
$1,342,619
*comparable enrollment and spending data for New Mexico not available at this time