NCPA - National Center for Policy Analysis

Medicaid Expansion Will Become More Costly to States

September 21, 2012

Under the Affordable Care Act (ACA), the federal government has given many options to state governments that seem attractive on the surface but may end up being very costly, says Drew Gonshorowski, a policy analyst at the Heritage Foundation.

  • Under the ACA, states can choose to expand their Medicaid populations to include individuals below 138 percent of the federal poverty level.
  • The federal government will pick up 100 percent of payments for the first three years and then roll back its payments.
  • The expansion would increase federal spending by $642 billion according to the Congressional Budget Office.
  • This option is meant to induce states to choose to expand Medicaid because of the perceived low costs.

However, President Obama has already proposed a budget for fiscal year 2013 that reduces the federal match rate on the expansion, which would have several implications for states. Indeed, the proposed blended rate in the budget would cost states up to $3.4 billion a year.

Several scenarios were simulated to show the different results a state could experience if the federal match rates are reduced. In the first simulation, the 100 percent match rate as specified by the ACA is assumed. In the second scenario, a 90 percent match rate is assumed. The third scenario is reduced by 10 percent but keeps the same schedule as the ACA. In the fourth and final scenario, the match rate is reduced to the blended rate. Some examples are given on how they would affect individual states:

  • Ohio would see increased spending by $407 million in the first five years under the first scenario, $1.3 billion in the second scenario, and $2.5 billion in the last scenario.
  • Similarly, Illinois would spend $840 million in the first scenario, $2 billion in the second scenario, and $6.6 billion under the proposed blended rate.
  • Finally, in Georgia, spending could increase by $200 million in the first five years. However, if the match rate is lowered, costs could go up to $1.2 billion.

State legislatures must be cautious in assessing the costs and benefits of expanding Medicaid. While the federal government makes claims of lowered overall costs, the proposed blended rates actually place a heavier burden on the states to pay for Medicaid.

Source: Drew Gonshorowski, "Medicaid Expansion Will Become More Costly to States," Heritage Foundation, August 30, 2012.


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