Analysis estimates relatively small state cost burden under Medicaid expansion

A report released Nov. 26 by the Kaiser Family Foundation concluded that Medicaid expansion through implementation of the Affordable Care Act (ACA) would only modestly raise states' cost burdens. The report also noted that some states would realize net budget savings -- even as millions of low-income uninsured individuals gain health coverage.

As with all of Medicaid, the coverage and budget impacts of the Medicaid expansion would vary across states. States that had already expanded coverage to adults at 100 percent of the poverty level or above – such as Vermont, Massachusetts, New York, Maine, and Maryland – may see savings under the Affordable Care Act due primarily to higher matching rates for already covered populations, the report said.

States with relatively large uninsured populations prior to any coverage expansions – including Nevada, Florida and Mississippi – are likely to see higher increases in state costs, but those increases are expected to be small relative to decreases in the uninsured and increases in federal matching funds.

The analysis showed that if all states were to expand their programs, state Medicaid spending nationally would rise by $76 billion from 2013 to 2022, an increase of less than 3 percent, while federal Medicaid spending would surge by $952 billion, or 26 percent.

As a result, an additional 21.3 million individuals could gain Medicaid coverage by 2022 and, together with other ACA coverage provisions, would cut the uninsured by almost half, or 48 percent, according to the report.

If coverage expands, states would also see declines in uncompensated care costs tied to spending on hospital care for people without insurance. If all states adopted the Medicaid expansion, states could save an estimated $18 billion from 2013-2022.

That would help to further offset the incremental costs of implementing the Medicaid expansion, particularly for states in the South, which tend to spend more on uncompensated care relative to their current spending on Medicaid than do states in other regions, according to the report.

About 30 percent of uncompensated care is paid for by state and local governments, according to John Holahan, director of the Health Policy Research Center at the Urban Institute and primary author of the report for Kaiser.

The federal dollars in the Medicaid expansion combined with the reduction in uncompensated care could save states about one-third of the costs they would spend in the Medicaid expansion. “State costs fall to less than 1 percent of extra spending in some states,” he said in a briefing call with reporters.

The decision to go with Medicaid expansion “will be hard eventually for states to walk away from,” Holahan added. There is no deadline date for states to make that decision.

Under traditional Medicaid, the federal government pays for up to 60 percent of coverage; under ACA’s Medicaid expansion to cover individuals from 100 percent to 138 percent of the poverty level, the federal government will pay 100 percent initially, and later progressively reduce its share over 10 years to 90 percent.

“States are deciding whether to expand the Medicaid program, and they clearly will be balancing the improvements in coverage against new costs for states,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of the Kaiser Commission on Medicaid and the Uninsured.

“While some states will see net savings, others will need to weigh the trade-offs between small increases in state spending in return for large gains in coverage supported by mostly federal dollars,” she added.

In addition to Holahan, Matt Buettgens, Caitlin Carroll and Stan Dorn at the Urban Institute prepared the report, which offers important data for state officials to consider in light of the June Supreme Court ruling that made the ACA’s Medicaid expansion optional.

The ACA set a national floor for Medicaid eligibility for adults with annual incomes at or below 138 percent of the federal poverty level, which is $15,415 for an individual in 2012.

It is unclear how many states will not participate. Eight states have said that they will not, “but we would expect everyone to re-evaluate and move forward,” Rowland said. Many states are making their decisions as they consider the results of the election and as governors prepare budgets for introduction in January.

“We would hope that they would look at the results in this report and be able to bring it before their legislatures and other groups to decide whether to go forward or not,” she said.

The economics are strong for adopting the exchange and expansion, Holahan said. “What they decide to do now may not be where they end up. It may be for political reasons that people may not want to do it, but clearly providers and other groups will put pressure on states," he commented.

For Medicaid, there is no firm deadline by which states have to submit their plans and intentions to expand as there is for the health insurance exchanges. But the decision-making process is potentially more complex for Medicaid, said Alan Weil, executive director of the National Academy for State Health Policy.

It may be through a budget that the decision is stated, or through a state statute with which they will implement changes in Medicaid law. “What most people are going on as to whether the state will do it or not is based on the governor’s public announcement often made just a few days after the Supreme Court decision when this was a new issue. We expect this to play out over time,” Weil said.

Medicaid enrollment and spending will rise even in states that do not choose to expand coverage because other ACA provisions, including the requirement to simplify enrollment and the implementation of the insurance exchanges, will also increase Medicaid enrollment of some adults and especially many children who are already eligible for the program but not yet enrolled.

The report noted that states may want to factor the costs of the currently eligible population into their calculations as they weigh the costs and benefits of undertaking the Medicaid expansion to newly eligible individuals. For states that do adopt the expansion, they will see significant increases in coverage with limited incremental state costs and will see large increases in additional federal funds, the report said.

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