Policy Tip Sheet: Medicaid Expansion

Problem

In the wake of the U.S. Supreme Court’s decision on the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, states must now decide whether to expand their Medicaid programs by accepting a larger federal subsidy.

As passed, PPACA required states to expand their Medicaid eligibility to all individuals with incomes between 133 percent and 138 percent of the federal poverty level. States that failed to meet this requirement would no longer receive any federal Medicaid grants at all.

The Supreme Court, however, ruled states could not be required to expand their Medicaid programs in order to continue receiving current levels of federal support.

Therefore, states are not required to expand their Medicaid programs, but the offer of “free money” is proving tempting to many states.

In reality, the money isn’t free. Accepting federal funds to expand Medicaid rolls will impose new costs upon states and, ultimately, state taxpayers.

The federal matching rate starts at 100 percent for newly eligible enrollees, but it declines over time, leaving states to find other ways to pay for the newly eligible population.

Moreover, the new federal matching rate applies only to newly eligible enrollees. But due to the individual mandate, residents who are currently eligible for Medicaid but not enrolled will be forced to enroll. Those enrollees will be subject to the regular matching rate, so state costs for Medicaid will be increasing dramatically even without expanding the program.

States that choose to expand, instead of reforming an already broken system, will subject even more of their lower-income residents to a program that provides inferior care.

Policy Solution

States should avoid Medicaid expansion and instead reform their fiscally unsustainable programs in ways that will offer better care and lower costs to the state. Solutions to consider may include a premium-based model like Florida’s pilot program, which saved $118 million a year in the five counties in the program, or a block-grant program that gives states more flexibility over how they run Medicaid and manage its costs.

Policy Message

Point 1: Expansion will add approximately $800 billion to the national debt.1

Point 2: On average, expansion is expected to cost states approximately $21 billion just from 2014 to 2019.2

Point 3: The federal money is applicable only to newly eligible enrollees. The currently eligible population will be subject to the regular federal matching rate.3

Point 4: Most current cost estimates do not factor in the state’s 10 percent responsibility for newly eligible enrollees in 2020 and beyond.3

Point 5: Medicaid programs are already fiscally unsustainable.4

Point 6: Expansion would add new patients to a system that already provides inferior health care.4

Point 7: A Physicians Foundation survey of 13,575 doctors across the country found one of every four physicians already refuses to treat Medicaid patients. Expansion does not guarantee greater access to health care.5

References

1. Brewer’s Price, <http://www.nationalreview.com/articles/337788/brewer-s-price-editors#>

2. Medicaid: To Expand or Not Expand, <http://americansforprosperity.org/legislativealerts/medicaid-to-expand-or-not-to-expand/>

3. The Reasons States Are Rejecting Obama’s Medicaid Expansion, <http://reformmedicaid.org/2012/07/the-reasons-states-are-rejecting-obamas-medicaid-expansion/>

4. The True Cost of Medicaid, <http://reformmedicaid.org/the-true-cost-of-medicaid/>

5. Physicians Pessimistic About Health Care Law, <http://news.heartland.org/newspaper-article/2012/11/06/physicians-pessimistic-about-health-care-law>