NCPA - National Center for Policy Analysis

Quantifying Costs to States of Noncompliance with Health Reform's Medicaid Expansion

January 23, 2012

In March, the Supreme Court will hear arguments on issues arising from challenges to the Patient Protection and Affordable Care Act (PPACA).  While public attention has focused principally on the constitutionality of the individual mandate, the Court will also review whether the PPACA's expansion of Medicaid infringes on state sovereignty by coercing state governments, says Edmund Haislmaier, a senior research fellow at the Heritage Foundation.

States qualify for financial support from the federal government so long as they comply with federal Medicaid rules.  However, the implementation of the PPACA will bring with it many new rules that will greatly increase the cost of the program.  And while states can ignore the new rules by opting out of federal support for Medicaid, no state can afford to cover the loss of federal funds on its own.

  • In each state, at least 50 percent of the funding for Medicaid comes from the federal government.
  • The average state is expected to dedicate 25.75 percent of its budget to Medicaid by 2013.
  • On top of that, it was found in a Heritage Foundation study that, in order for the average state to cover the loss of federal support, it would have to dedicate an additional 39.7 percent of its budget to Medicaid, in addition to the 25.75 percent.

By leveraging all federal Medicaid support against compliance with the new rules, the federal government has crossed the line from encouraging to coercing compliance.  The fiscal situation of Alabama, for example, demonstrates this point:

  • Alabama has projected general-fund revenues for 2013 of $7.5 billion.
  • It is expected to spend $1.8 billion of that money (24 percent) on Medicaid, with approximately $4 billion in federal funds covering the remainder of the program.
  • Thus, in order to cover the loss of federal funds, Alabama would have to allocate another $4 billion from its general revenue toward Medicaid (an additional 53 percent of the state's budget).

The Court recognized in South Dakota v. Dole that a bright line does exist beyond which federal financial inducement equivocates to coercion.  In March, the Court will determine if the PPACA crosses that line.

Source: Edmund Haislmaier, "Quantifying Costs to States of Noncompliance with the PPACA's Medicaid Expansion," Heritage Foundation, January 12, 2012.

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