Medicaid Expansion Is a Good Deal for States

States should take advantage of the federal incentives to expand Medicare.

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Chad Stone is chief economist at the Center on Budget and Policy Priorities.

Several state governors vow to reject a Medicaid expansion—virtually entirely federally funded—that, nation-wide, would provide healthcare coverage for about 17 million more low-income adults and children. This reaction does not follow from any cool-headed financial calculation.

Here's the issue: Medicaid currently provides health coverage to low-income families and individuals, including children, parents, seniors, and people with disabilities. It's funded jointly by the federal government and the states. The Affordable Care Act (a.k.a. health reform) includes an expansion of Medicaid to cover more low-income adults and other parents. 

As enacted, the law required states accepting federal Medicaid money (which all states currently do) to adopt the expansion. While the potential loss of all federal Medicaid funding was a substantial "stick" encouraging states to adopt the expansion, the legislation also offered a generous "carrot"—full federal funding of the expansion for the first three years, phasing down to 90 percent funding by 2020 and in all subsequent years. The Supreme Court struck down the "stick" but the "carrot" remains in place. That still should be an offer states can't refuse.

[See a collection of political cartoons on healthcare.]

Governors vowing not to adopt the expansion say it will wreck their budgets. But as this Center on Budget and Policy Priorities analysis shows, that claim does not stand up to scrutiny. Here is what CBPP and other independent analysts conclude:

  • The federal government will bear nearly 93 percent of the costs over the 2014-2022 period, according to Congressional Budget Office estimates
  • The additional state costs would be just 2.8 percent more than what CBO projects states would spend in the absence of health reform. Analysts at the Urban Institute and the Lewin Group find comparably small effects.
  • The impact on state budgets would be smaller, and likely substantially smaller, than CBO's $73 billion estimate of the increase in state Medicaid spending under healthcare reform. That's because states would spend less money than they do now on providing healthcare in emergency rooms and health clinics to people without insurance. 
  • CBO's $73 billion cost estimate already includes the costs that states would incur even if they do not adopt the expansion, such as costs for people eligible for Medicaid who are not currently enrolled newly participating as a result of the individual mandate and other aspects of the health reform law.
  • When all is said and done, a federal match of $13 dollars for every dollar the state puts up to expand health insurance coverage among its disadvantaged population is a very good deal. It's an even better deal when you take into account the savings states can expect from reduced spending on care for people without insurance.

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