The Dollars and Sense of Medicaid Expansion and the Opportunity for Entrepreneurial Innovation

Medically vulnerable populations, such as dually eligible patients, are predisposed to income disparities and have a relatively limited purchasing power. [Jacobson et al] The lack of purchasing power poses a challenge for expanding entrepreneurial innovations to vulnerable populations through business-to-consumer (B2C) sales models. There are ways to overcome the limited consumer purchasing power through business-to-business (B2B) sales models. And value can be indirectly distributed to vulnerable populations by selling to payers or provider organizations serving those patients. [Ostrovsky et al] The expansion of Medicaid eligibility criteria through the Affordable Care Act (ACA) may offer a rare opportunity for B2C sales models to thrive with vulnerable populations.

Previously, patients had to be profoundly poor to be eligible for the Medicaid program including an income for jobless parents of less than 37% of the federal poverty level (FPL) and an income for elderly and individuals with disabilities of less than 79% of the FPL. [Kaiser]

 [Source: Kaiser Family Foundation]

The poor that did not quite meet eligibility criteria for Medicaid had to find other ways to cover medical expenses so they typically did not have the dispensable income to purchase a health app or a wearable device.

Starting in 2014, the federal government will cover 100% of the costs of expanding the Medicaid program to residents with incomes at or below 138 % of the FPL ($15,856 for an individual and $32,499 for a family of four). [Glied et al] These people are still not economically well off, but they may have a little more cash for necessities and perhaps the occasional digital health technology purchase.

If it were adopted by all states, the Medicaid expansion could provide health insurance to as many as 21.3 million Americans by 2022. [Glied et al] Furthermore, the Medicaid expansion will help to reduce the current variation in eligibility levels across the states. [Kaiser]

What’s really exciting from the perspective of mitigating investment risk is that this is a sustainable change; the federal government will fund 100% of Medicaid expansion through 2016, and then 90% of costs through 2020. [Glied et al] So entrepreneurs and investors entering the space can feel comfortable that this will be a systemic change with sustained market opportunity.

Although this patient population may have the opportunity for some dispensible income, they are still generally economically poor, so there is still a large need for entrepreneurs to provide value through innovative B2B models.

One important consideration for entrepreneurs focusing sales on hospitals serving the newly-Medicaid eligible population is that these hospitals stand to benefit from a net increase in revenue.[Dorn et al] Medicaid expansion increases the number of patients for whom hospitals are paid, but some patients will shift from private to more poorly reimbursed public coverage. [Dorn et al] More specifically, for each dollar in private revenue that Medicaid expansion eliminates, hospitals’ Medicaid revenue rises by $2.59. [Dorn et al]

Despite the fiscal common sense expanding Medicaid, some states may choose not to adopt this reform. States that expand Medicaid stand to get a substantial influx of Medicaid dollars from the federal government while nonparticipating states still pay but don't get any of the funding back.[Glied et al] To put into perspective the magnitude of the funding, consider that by the end of this decade federal dollars toward Medicaid flowing into states will be 2.35 times the funding for building highways and 1.25 times the funding for defense procurement contracts. [Glied et al] State spending toward Medicaid will be the same regardless of whether they accept Medicaid dollars. [Glied et al] Entrepreneurs should be aware that hospitals and patients in non-participating states may present be a real challenge to early adoption given the perpetuation of limited purchasing power. Unfortunately, failure to expand Medicaid may predispose populations in those states to exacerbating digital health disparities.

Medicaid expansion, along with several other provisions of the ACA [Ostrovsky], offers an opportunity for social impact through commercial growth. It will be interesting to see the impact on achievement of the triple aim and investment in this space in the years to come.