NCPA - National Center for Policy Analysis

Exchanging Medicaid for Private Insurance

December 14, 2012

The Supreme Court upheld the Affordable Care Act (ACA), but not without striking down a provision that would refuse federal Medicaid funds to states that didn't expand their Medicaid programs. Other provisions of the ACA will give sliding-scale subsidies to low-to-middle income individuals for the purchase of private health coverage in a health insurance exchange that will be set up in each state beginning in 2014, says Devon M. Herrick, a senior fellow at the National Center for Policy Analysis.

The health insurance exchanges will be set up by either the state or the federal government. People that do not receive health plans through their employers or Medicaid are eligible for exchange subsidies.

  • In states that don't expand Medicaid coverage to individuals with incomes of 100 percent to 133 percent of the federal poverty levels, those individuals will be eligible for subsidized coverage in the exchange.
  • In every state, individuals earning 133 percent to 400 percent of poverty will be eligible for subsidized coverage through the exchange.
  • However, not everyone will enroll in the exchanges.

Medicaid expansion will cost the state and federal governments a massive amount of money.

  • The federal government will spend over $295 billion over the 10-year period to cover newly eligible individuals earning 100 percent to 133 percent of poverty.
  • States would also bear an additional $19 billion in costs.
  • However, letting private insurers pay market rates for medical care would increase medical spending by $233 billion, which is good for doctors and hospitals.
  • Moreover, it would only cost the state about $9 billion over the next decade to pay its share of premiums to entice low-income population to sign up for coverage.
  • This would leave the remaining $10 billion to be spent on the uninsured or on Medicaid enrollees earning below 100 percent of the poverty level.

Medicaid has several problems that make its expansion undesirable:

  • Poor access to care.
  • Overcrowded emergency rooms.
  • Worse health outcomes.
  • Low Medicaid provider payments.
  • Crowd out of private insurance.

A better solution would be to convert Medicaid into block grants. This would allow the federal government to provide each state a fixed sum of money and allow states the flexibility in designing programs that fit their individual needs.

Source: Devon M. Herrick, "Exchanging Medicaid for Private Insurance," National Center for Policy Analysis, December 2012.


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