NCPA - National Center for Policy Analysis

Whether States Should Expand Medicaid Is a Tough Decision

March 7, 2013

The Affordable Care Act ("ObamaCare") envisions that states will fully expand Medicaid coverage and the federal government has promised to cover the costs of doing so. Some states have eagerly jumped aboard while other states have refused to expand coverage. There are myriad factors that states must weigh in their decision and most states will reach different conclusions based on the complex calculus, says Charles Blahous, a senior research fellow at the Mercatus Center.

  • The new law plans to extend coverage to childless adults with incomes up to 138 percent of the Federal Poverty Level.
  • While the federal government has historically picked up 57 percent of Medicaid costs on average, it will cover 100 percent of the costs for the newly eligible population for the first three years.
  • The Supreme Court struck down ObamaCare's original Medicaid mandate and now states must decide whether or not they will expand Medicaid coverage and accept the federal funds.

States must consider whether the expansion makes sense financially, as over the long run an increasing percentage of the cost will be shifted to already struggling state budgets. Medicaid already accounted for nearly 24 percent of state budget expenditures in 2011 and costs are projected to rise by more than 150 percent over the next decade. Medicare expansion would mean higher costs for a greater number of beneficiaries.

  • States must also estimate the likelihood that the federal government will reduce its scheduled Medicaid payments in the future.
  • States who decline to offer Medicaid for individuals between 100 percent and 138 percent of the poverty line can minimize their budgetary responsibilities by shifting the full costs of providing health care to the federal government under Obamacare.

With such a large set of considerations, it seems likely that states will make a variety of policy choices regarding the Medicaid mandate. The complexity of the issue and a lack of confidence in the federal government's willingness or ability to pay means that some states are likely to defer their decisions for as long as possible.

Source: Charles Blahous, "The Affordable Care Act's Optional Medicaid Expansion: Considerations Facing State Governments," Mercatus Center, March 5, 2013.


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