Report: Cost of Medicaid Expansion Relatively Modest for States

November 27, 2012 — States that choose to expand Medicaid eligibility under the Affordable Care Act (PL 111-148) to people with incomes at or below 133% of the federal poverty level will only see a small increase in costs, according to a report by the Kaiser Family Foundation, The Hill's "Healthwatch" reports (Baker, "Healthwatch,"The Hill, 11/26).

According to the report, states will spend an additional $76 billion and the federal government will spend an additional $952 billion over the next decade if every state expands Medicaid eligibility (Kliff, "Wonkblog,"Washington Post, 11/26). Although the ACA called for all states to expand Medicaid eligibility, the Supreme Court's ruling upheld the law on the basis that states be given the option of not participating in the expansion ("Healthwatch,"The Hill, 11/26).

Meanwhile, even if no state participates in the expansion, enrollment would still rise, in large part because those who are currently eligible for Medicaid but not enrolled will join the program. KFF estimates that Medicaid enrollment would still grow by 5.7 million over 10 years. Under that scenario, states would spend $68 billion more and the federal government would spend $152 billion more over the next 10 years on Medicaid ("Wonkblog,"Washington Post, 11/26).

Initially, the federal government will pay for 100% of states' cost of the expansion ("Healthwatch,"The Hill, 11/26). The additional $8 billion in spending if every state participates in the expansion comes from when federal assistance for the Medicaid expansion begins to phase out, dropping to 95% in 2017 and remaining at 90% after 2020. However, that extra spending will not be distributed evenly. States with the smallest Medicaid programs would see their costs increase the most because they would undergo the largest expansions ("Wonkblog,"Washington Post, 11/26).

A dozen states would see their Medicaid spending increase between 4% and 7% over the next decade because their current eligibility standards are more restrictive than the minimum set under the ACA (Galewitz, "Capsules," Kaiser Health News, 11/26). For instance, Texas -- the state with the highest rate of uninsured -- would spend 6% more on its Medicaid program to cover 2.4 million additional beneficiaries (Alonso-Zaldivar, AP/U-T San Diego, 11/26). Several governors already have said they will not participate in the expansion because it will be too costly ("Healthwatch,"The Hill, 11/26). Alan Weil, executive director of the National Academy for State Health Policy, said some states might still find the costs too burdensome. "A lot of states are still digging their way out of the fiscal downturn," he said ("Capsules," Kaiser Health News, 11/26).

On the other hand, states that participate in the expansion will save $18 billion on uncompensated care costs currently spent on medical care for the uninsured (AP/U-T San Diego, 11/26). Some states -- including Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New York and Vermont -- would see a decrease in state Medicaid spending because they already provide broad coverage and would benefit from increased federal funding ("Healthwatch,"The Hill, 11/26).