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Study: States Face Increased Medicaid Costs Even If They Don’t Expand Program

By Phil Galewitz

November 26th, 2012, 4:04 PM

If state officials think they can escape a fiscal quagmire by refusing to expand Medicaid under the federal health law, they might want to reconsider.

State Medicaid costs will jump $76 billion, or nearly 3 percent, over the next decade if all 50 states decide to expand Medicaid eligibility in 2014 under the federal health law. But state spending on the program would still increase to the tune of $68 billion even if not a single one opts for the expansion, according to a study released Monday by the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

That’s because even states that do not expand eligibility would see a surge of people sign up for the health insurance program for the poor, who were previously eligible but not enrolled. Beginning next October, people will find it easier to sign up for Medicaid because of new online health insurance marketplaces set up under the law, as well as simplified enrollment methods, said Diane Rowland, executive vice president of the foundation and executive director of the Kaiser Commission on Medicaid and the Uninsured. The insurance exchanges and new enrollment rules start in 2014 regardless of whether states expand Medicaid, with coverage slated to take effect on Jan. 1, 2014.

Republican governors of several states, including Florida and Texas, have said they can’t afford the expansion.

State eligibility for Medicaid today varies nationwide. Under the federal law, starting in 2014, nearly everyone under 133 percent of federal poverty level (about $31,000 for a family of four) will be eligible. The Supreme Court in June gave states the option to decide whether to expand the program. The federal government will pay for the full cost of the newly eligible from 2014 through 2016, after which  states will have to pick up some of the costs, but no more than 10 percent after 2019.

The report, conducted by researchers from the Urban Institute, estimated 21 million additional people would sign up for Medicaid if all states participated.

The study projects that Medicaid spending across all states would increase by 0.3 percent from 2013 to 2022, while federal spending on the program increases 21 percent. Ten states, including New York and Iowa, would see Medicaid spending fall during that timeframe because they already provide broad eligibility and would benefit from higher federal funding. Likewise, a dozen states, half of them in the southeast, would see state Medicaid spending increase by between 4 and 7 percent through 2022 because their eligibility levels are currently more stringent than under the health law.

The report found that expanding Medicaid would have limited impact on total state spending. Overall, the new Medicaid spending represents a 0.1 increase in total state spending relative to the overall state general fund, through 2022. Even among states such as Florida and North Carolina that are projected to see the biggest increases in state spending, the increase in new spending is projected to be about 1 percent of state general fund spending, after the savings in uncompensated care are included.

“This is pretty attractive and should be hard for states to eventually–not right away– to walk away from,” said John Holahan, co-author of the study and director of the health policy research center at the Urban Institute.

Alan Weil, executive director of the National Academy for State Health Policy, said a 1 percent increase in spending for states is still significant for those struggling after the economic downturn. “A lot of states are still digging their way out of the fiscal downturn,” he said.

9 Responses to “Study: States Face Increased Medicaid Costs Even If They Don’t Expand Program”

  1. When will everyone realize there are NO savings to expanding Medicaid??!! The low cost sharing requirements promotes over-utilization of medical care, often medically UNneccessary. Health refom shields the cost burden to states initially, then slams them with the full cost of expansion. The report is extremely chilling in the fact that the cost increase if NO state expands is very close to the EVERY state expansion figure.

  2. W Khalifa says:

    Why would there be savings when the point is to expand Medicaid to include more of the unfortunate?

  3. Under ACA the federal government covers the full cost of the expansion for two years. The federal share then drops to 90 percent. So the states are not “slammed with full cost of “expansion.” Also, remember, when these folks get sick they do get care, which is usually uncompensated. This cost is passed on to those of us who have insurance by way of higher premiums. It seems more rational to use this money up front to provide preventive and primary care for these individuals. This not only improves the quality of their lives but allows them to continue to be productive members of society. So, besides being the right thing to do, it’s the smart thing to do. That’s why all the other developed countries have found a way to provide universal health care — and they do it for less and get better outcomes.

  4. Lance says:

    “It seems more rational to use this money up front to provide preventive and primary care for these individuals.”

    Rational? Since when have Republicans done anything rational? They spent the last four years trying to defeat Obama and repeal the ACA. How does that do anything rational to help the American people.

    “This not only improves the quality of their lives but allows them to continue to be productive members of society.”

    Republican have no interest in improving the lives of the 47 percent Mitt Romney called “takers”.

  5. Lloyd Omdahl says:

    It is tragic to see that the states (SE) with the greatest concentration of Evangelical Christians are the states doing the least for the poor.

  6. Michael Bertaut says:

    I find this entire argument specious. The idea that a state could have ever thought they could “save” themselves out of their current fiscal crisis by not expanding Medicaid? Pretty weak, I haven’t seen a single state official state that case.

    The reality is that the “DC Mindset” of spend til you can’t borrow any more does’t apply in the states, many of which operate under balanced budget amendments. It’s not a question of whether or not the expansion is a good deal for the states, it’s that they don’t even have the money to show the Feds to draw down their share. That is a reality that wishing will not make go away. And tax increases in the states have been convincingly voted down (except in California, amazingly enough) no matter what their governors say or want. There is a reason the House remained in Republican hands.

    Speaking of share, you do realize that the millions of “eligible but not signed up” that will ostensibly be forced out of the woodwork by the Individual Mandate and Exchanges are NOT ELIGIBLE for the new 90/10 reimbursement but will have to be paid by the state’s at their current reimbursement shares (more like 60/40). In that way, PPACA may turn out to be the largest unfunded mandate in history. At least from the state’s perspectives.


  7. Becky Horton says:

    It is important to remember that although the states might benefit under the ACA provisions, the indebted federal government must foot the bill. In order to create real savings for the Medicaid program we must look to alternative restructuring options to limit costs and control usage. Read more about these options-

  8. Paul Hillery says:

    “…the millions of “eligible but not signed up” that will ostensibly be forced out of the woodwork …” Hmm. So the states that have not been taking care of their termites (nasty thing to call the chronically ill, aged and children who also happen to be poor) won’t get a bonus for poor performance in the past. Sounds like good management to me. And by the way, covering eligible people wold NOT be a new unfunded mandate, historically large or not. It is just the reality of certain states not wanting to spend more than they could get away with not pending, on a population that tends to have little voice in the statehouses. And safe districts in most sates is a bigger “…reason the House remained in Republican hands”, than a belief that untreated illness among the less fortunate is a good thing.

  9. Robert Luedecke, MD says:

    There is no doubt that Medicaid could be improved, but the fact is that no state is required to participate in Medicaid, but currently all choose to. It makes no sense to delay participation while you try to get it perfect. The reason is that all these low income people are going to cost money one way or the other and to have the federal government pay 40% is much better than state and local taxpayers and the insured paying 100% of the uninsured cost. If the states see the benefit of Medicaid with a 40% federal copay, how can they not see the benefit with a 90% federal copay for further expansion. I understand the states have to get even the 10% from somewhere, and some are looking at taxing hospitals for a portion of the extra revenue they will realize under Medicaid expansion. The hospitals still make more money and the taxpayers and patients win. Ray Perryman, a conservative economist summarizes the math at