Medicaid Expansion under the Affordable Care Act

April 21, 2014

Does Medicaid expansion under the Affordable Care Act (ACA) make financial sense for states? The Affordable Care Act mandated that states expand Medicaid eligibility to Americans up to 138 percent of the poverty level, a requirement that was struck down by the Supreme Court. As it stands now, states have the choice of whether to expand their programs. But states need to be given even greater flexibility to shape their Medicaid programs, says Joseph Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

  • The federal government will pay 100 percent of the costs for individuals who become eligible for Medicaid under the ACA expansion. That matching figure will drop to 90 percent by 2020.
  • Medicaid is the largest component of state expenditures. Of the $1.7 trillion that states spent in 2013, Medicaid was responsible for 23.5 percent of that spending.
  • The impact on a state's budget costs depends upon how many people would enroll under the expanded program, as well as savings that could accrue from early diagnosis, among other factors.
  • New York could see savings up to $33.8 billion by expanding Medicaid, while Georgia could see $1.8 billion in higher costs.

Whether a state chooses to expand or not, all states would benefit from Medicaid reform.

  • Medicaid provides benefits to low income individuals with no obligation for those individuals to work or contribute to the program.
  • Work requirements should be instituted and Medicaid should be transformed into a program that subsidizes private insurance costs.
  • By shifting to a system of finite block grants to the states, the incentives that encourage higher Medicaid spending would disappear.
  • States should also seek federal waivers for their programs that would allow them to experiment with new Medicaid models, and the waiver program should be simplified to make this process easier for states.

The Affordable Care Act will significantly increase Medicaid spending, rising 6.7 percent annually from 2012 to 2022. Policymakers must find ways to reduce the program's cost while at the same time improving its value to those who need it.

Source: Joseph Antos, "Medicaid Expansion under the ACA: Dollars and Sense?" American Enterprise Institute, April 10, 2014.

 

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