Extending Medicaid Coverage Provides Good Value to States & Uninsured People

As the dust settles on the Supreme Court decision to uphold the Affordable Care Act, the big question emerging is whether all states will proceed with the required expansion of Medicaid to 133 percent of the federal poverty level (FPL) for parents and other adults.  Like the rest of the Affordable Care Act, this requirement remains the law of the land, but the Supreme Court has said that HHS cannot enforce it by taking away all of a state’s existing Medicaid funding.  In light of the weakening of HHS’s hand, a number of the nation’s Governors have pounced and declared that they may not implement the expansion because it is too costly. With the political rhetoric on the question as over-heated as a D.C. house that has been without air conditioning for days in the midst of a record heat wave (and, yes, sadly, we are speaking from personal experience here), we thought it would be useful to set the record straight about the fiscal impact of the extension.  When cooler heads prevail, we think it will be apparent that it would be ludicrous for a state’s leaders to voluntarily sacrifice health care coverage for their own constituents and forgo robust federal funding to extend cost-effective Medicaid coverage to low-income adults just to make a political point.

Let’s start with the basis of how the Medicaid extension will be financed.  The federal government will cover the full cost of the extension of Medicaid coverage to adults up to 133% of the FPL (about $15,000 for an individual or $25,000 for a family of three.) After the first three years of funding 100%, its contribution will gradually be reduced over time until by 2020 it reaches a still-generous 90 percent.  This is such a great deal for states that even Senator Orrin Hatch (R – UT) said just the other day: “There’s no state in its right mind that wouldn’t take the money.”

The Urban Institute broke out the number of adults who would benefit from the expansion by state.  It also took a careful look at the cost to the states, including the costs that will be created when already-eligible people find out about and enroll in coverage as a result of health reform.  Even taking into account this “welcome mat” effect, the findings highlight that the states will get a huge bang for their buck out of the Medicaid expansion. If fully implemented, the expansion will significantly reduce the number of uninsured adults while increasing state Medicaid spending by only 1.4% more than if health reform had not been enacted.

And that’s just one side of the ledger book because it considers only the direct impact on a state’s Medicaid spending. Another study from Urban factored in expected state savings from other programs, such as from a decline in spending on uncompensated care and mental health services that currently are financed entirely with state funds. By reducing the number of uninsured and increasing federal spending on care that was previously financed by states and localities, overall state spending under reform will actually be less than it is currently. In fact, even when the matching rate for the newly-eligible declines to 90 percent, states still are expected to see savings of between $12 and $19 billion in 2020 alone.

In the weeks ahead, we expect to hear lots of crazy claims about the fiscal impact of the Medicaid extension.  As states roll out their estimates, we encourage you to ask some key questions aimed at untangling whether they are legitimate, including 1) do they include state savings (such as from uncompensated care and mental health spending) as well as any new costs for Medicaid enrollment? 2) Do they include realistic assessments of the rate at which eligible people will participate in Medicaid (some states have assumed 100 percent participation even though this has never happened in Medicaid or any other social services program)? 3) Do they include accurate estimates of the per capita cost of new enrollees? When states take a clear-eyed, objective look at the fiscal impact of the Medicaid extension, we think there is no chance they will pass up the chance to provide coverage to their low-income citizens with strong support from the federal government.