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The Fiscal Facts about Medicaid Expansion

By Dr. Ram Krishnamoorthi

In the wake of the Supreme Court’s ruling on the Affordable Care Act (ACA), in which the majority of the law was upheld as constitutional, there has been growing interest in the Court’s decision about Medicaid expansion and on the expansion plan itself. The ACA’s expansion of Medicaid promises to extend health insurance to 15 to 17 million Americans by increasing eligibility and easing enrollment. The basic rules of the expansion were left intact by the Supreme Court ruling, but the Court declared that the Federal government could not “coerce” States to participate in the ACA’s expansion plan by making all Medicaid funding conditional on expanding Medicaid eligibility. This opt-out allowance has emboldened many State governors to proclaim that they will not accept federal money to participate in ACA’s plans for Medicaid expansion, claiming that this expansion would be financially burdensome for their states. Yet, while the political drama is enticing, the facts don’t merit the controversy, and the governors’ posturing may be financially un-wise.


Currently, the federal government requires that Medicaid be available to adults who 1) fall under the federal poverty line and 2) who have children, are pregnant, or are disabled. Although Medicaid is almost entirely administered by the states, including actual enrollment of beneficiaries and reimbursement to health care providers, the cost is split between the federal and state governments, with the federal government shouldering, on average, about 57% of cost.


There are two ways that the ACA will expand enrollment in Medicaid. First, the ACA makes more Americans eligible for the program by 1) increasing the income standard to 133% of the federal poverty level (in 2011 this was $10,890 for individuals and $22,320 for a family of four), and 2) doing away with the requirement that you must have children, be pregnant, or be disabled. The ACA ensures that the Federal government would pay for 100% of this the first 3 years, then phase down to 90% after 2020 and beyond. According to the Congressional Budget Office and the Center for Budget and Policy Priorities, this averages to the Federal government paying for 93-94% of the expansion over the rest of the decade.


The second way is that the ACA simply makes it easier for eligible Americans to enroll in the program. The little known truth is that there are millions of Americans who are already eligible for Medicaid but are not enrolled because of complicated paperwork for potential beneficiaries and for state agencies and providers.  In fact, a New England Journal of Medicine paper reports that only 62% of all eligible individuals are enrolled in Medicaid, with some states like Oklahoma, Texas, and Florida enrolling under 48%. The issue is even more is true for children; 60-70% of uninsured children are eligible for Medicaid or State Children’s Health Insurance Programs (CHIP) eligible but are not enrolled.


In order to remedy this, the ACA will require states to streamline financial paperwork for residents to enroll. Also, social service and health care providers can use “Express Lane” agencies (like food stamps, Head Start, and WIC) that already have identified eligible children and adults and automatically enroll them where they show up for services. States can now enroll legal immigrants here for less than 5 years, verify citizenship through the Social Security database, and insure children continuously instead of provide on-and-off coverage that currently characterizes Medicaid’s inefficiency.


Less paperwork sounds great, right?  Well, instead of rejoicing in improved government efficiency, some States are afraid that easier enrollment will lead to a sort of “out-of-the-woodwork” effect: Millions who previously were scared away by the obstacles will now find it easier to access health insurance, incurring more expenditure for the State. That may sound cynical, but it’s at least the case that States perceive that enrolling more residents on Medicaid is not in their fiscal interests, especially in hard economic times and growing budget deficits; on average Medicaid occupies 16% of state budgets. And if governors now opt out, this would place the ACA’s universal coverage dreams at risk, according to an editorial in the Chicago Tribune from June 29th. The alarmist piece contends that “most or all” of the 26 states that challenged the law in court may walk away from Medicaid expansion because these states will struggle to meet their share of the bill.


But these claims and concerns are far from the fiscal truth.


The CBO and CBPP studies confirm that due to savings on uncompensated care, on average, states would only pay for 2.8% more than the costs that they would inevitably incur from Medicaid if there were no ACA at all. This cost is largely from to the enrollment of current eligible population, about $73 billion total over the rest of the decade, proving false the concerns that the “woodwork” effect would break the backs of states’ budget.


What about Medicaid as a growing burden on state budget deficits? Georgetown University’s Center for Health Policy found this to be mis-perceived as well, especially because the American Recovery and Reinvestment Act of 2009 helped to shore up financing.  In fact, States’ Medicaid spending, on average, when down by 3% since 2009. Over the last 15 years, Medicaid has increased by a modest 1% of overall state budgets.


If governors do not participate in Medicaid expansion and do not accept federal money to do so, about 11.5 million Americans would be left behind, not qualifying for their states’ Medicaid or for the health insurance exchanges. This means 245,000 New Jerseyans, over 1 million Floridians and 1.3 million Texans.


Critics often claim that ACA includes no strategy for containing health care costs and only breaks the federal budget by expanding Medicaid, to the tune of $930 billion over the next decade. But the CBO has scored the ACA deficit-neutral because of revenues and cost savings in the rest of the law. For health care costs, expanding primary care access will prevent more costly complications of chronic diseases like diabetes and heart failure down the road. For those of us who pay taxes, we will spend less state and local money on uncompensated care. For those of us who have insurance, premiums will decrease from less cost-shifting and from healthier citizens in the risk pool. And for 16 million Americans, the ACA means finally seeing a primary care doctor to stay healthy, to prevent unnecessary ER visits, and to avoid medical bankruptcy.


Providers who work in the trenches of the health care system know that Medicaid-covered services are already provided to the uninsured by state and county hospitals and by local safety-net providers. These providers desperately require proper reimbursement to continue their important work, and federal support is especially welcome in this time of deep economic challenge. For these providers on the frontline, the governors’ threats to reject Medicaid money and to not participate in Medicaid expansion mean more than the political theater for which the ACA is being exploited. To them, these actions would be utterly fiscally irresponsible. 

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