Most States Will Lose Money Expanding Medicaid

March 18, 2013

Medicaid expansion has been touted by proponents as a no-brainer because it will save states money. However, this appears to be true only for states with already bloated Medicaid programs. For the majority of states, expanding Medicaid under the Affordable Care Act (ACA) will cost money, says Drew Gonshorowski of the Heritage Foundation.

  • Forty of the 50 states are projected to see increases in costs due to Medicaid expansion.
  • Only New York, Connecticut, Delaware, Hawaii, Iowa, Maine, Maryland, Massachusetts, Vermont and Wisconsin stand to save money.
  • For these the states, restructuring their existing programs will allow them to transfer substantial cost to the federal ledger.

The estimates of savings for these states assume that the costs of uncompensated care will decrease, which has not always been the case in other states following expansions of Medicaid. The estimates also assume that state legislators will reduce state supplemental payments to providers, which is an assumption that is not guaranteed.

  • States are unlikely to cut payments because the ACA already cuts federal Medicaid payments.
  • Between 2014 and 2020, $18.1 billion will be cut out of federal Medicaid Disproportionate Share Hospital funding and $22.1 billion will be cut from Medicare Disproportionate Share Hospital funding.
  • Federal cuts will likely push hospitals and clinics to push for more -- not less -- supplemental state payments.

Expanding Medicaid represents a massive increase in federal and state spending for most states. For the first three years that the federal government will match 100 percent of state expenses, most states may see modest savings. As soon as the federal match rate begins to lower, states will experience rising costs that will offset any projected savings.

Medicaid expansion will cost most, if not all, states money and increase pressure on state legislators who must balance their budgets with the need for providers to recoup their costs.

Source: Drew Gonshorowski, "Obamacare and the Medicaid Expansion: How Does Your State?" Heritage Foundation, March 5, 2013.

 

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