Medicaid Expansion Will Be Expensive for Texas, Other States

Published August 15, 2012


By Kenneth Artz


In a ruling which surprised the federal and state governments alike, the Supreme Court decided states can opt out of President Obama’s sweeping expansion of Medicaid without losing access to their funds under their prior model.

As envisioned under Obama’s law, the expansion of Medicaid, the government’s health care program for low-income people, was expected to extend taxpayer-funded health insurance coverage by loosening enrollment standards to effectively include everyone below 138 percent of the federal poverty line (FPL). This would add roughly 25 million people to Medicaid, a dramatic increase for a program that already covers more than 51 million people.

Permanent Increase in Costs, Enrollment

In Texas, this expansion would mean that 1.8 million new people would gain coverage, while California would add 2 million more and Florida would take on an additional 950,000. The states had faced the prospect of being forced to take on these newly eligible populations or risk losing all their federal Medicaid funding. However, because of the Supreme Court’s ruling, states may now decline to participate in the expansion without losing access to their previously negotiated funding streams.

Tarren Bragdon, CEO of the Florida-based Foundation for Government Accountability, says with the Medicaid expansion now optional, many states probably won’t expand their programs because of the huge costs.

“If they don’t have to, then why would they? This will force the states who are already struggling to come up with money to take a hard look at their programs and come up with creative ways to save money for their taxpayers and provide better service for enrollees,” said Bragdon.

“Of course there will be some states that will take the feds up on their offer, but we all know that federal dollars are easy come, easy go and the states can be left holding the bag at any time. And once they expand Medicaid, the enrollees aren’t going to go away, so this will only drive up costs permanently,” Bragdon said.

Funds for Newly Eligible

Although the prospect of federal taxpayer money for the newly eligible is tempting, states such as Texas would face big long-term costs. Under the Medicaid expansion, nearly 2 million people are expected to gain coverage during the first two years. During the first 10 years, the Texas Health and Human Services Commission estimates the expansion would cost the state $27 billion.

Devon Herrick, a senior fellow with the National Center for Policy Analysis in Dallas, says the cost of expanding Medicaid may be more than the Lone Star State can bear. Although federal funds are indeed generous for the newly eligible population, they are less so for those who are eligible but not yet enrolled, Herrick notes.

“Texas has a large population of people who are currently Medicaid-eligible but not enrolled. Under Medicaid expansion, the cost of enrolling this population remains the responsibility of Texas taxpayers under old, less-generous federal matching rates,” said Herrick. “In addition, Texas would need to boost physician fees in order to entice doctors to treat all the new Medicaid enrollees, who otherwise could not find doctors willing to treat them.”

For currently eligible populations, states have only the regular Medicaid matching rate, which ranges from 50 to 76 percent, Herrick notes.

Illustrates Long Term Costs

Arlene Wohlgemuth, director of the Center for Health Care Policy at the Texas Public Policy Foundation (TPPF), says the Medicaid expansion would become a significant long-term liability for Texas.

“Though the federal government has committed to initially paying 100 percent of the cost of the expansion population, there is no such long-term commitment. Given the federal budget situation, Congress will figure out that they don’t have any money either and will push the costs back onto the states,” said Wohlgemuth.

Wohlgemuth says federal estimates are underestimating the costs to a state program already overextended by the recession.

“Whether or not Texas rejects ObamaCare’s Medicaid expansion, the Medicaid program will require an additional $10-15 billion in general revenue [funds] when the legislature meets next in 2013. About $4 billion of that will come from new enrollees who are eligible for the program currently but have chosen not to enroll,” Wohlgemuth said.

“The legislature will be forced to choose between taking the additional funding needed out of other programs such as education, implementing a sales tax increase of between .3 and .4 percent, or some combination, after using up the entire Rainy Day fund to cover the costs,” Wohlgemuth said. “Even if ObamaCare were to magically disappear tomorrow, there’s still going to be a $6 billion to $10 billion increase that we’re going to have to find funding for.”

Push for More Flexibility

Wohlgemuth said Texas and other states must use the leverage of this situation to press for a block grant of Medicaid funding from Congress.

“We can deliver better, more affordable care when the tax money is returned to the states. Block grants must be on the agenda for Medicaid reform,” said Wohlgemuth.

Jonathan Ingram, a health care policy analyst for the Illinois Policy Institute, says the Supreme Court’s decision makes it clear state legislatures will play a key role in shaping the future of Obama’s law if they choose not to implement health insurance exchanges and the Medicaid expansion.

“State lawmakers from around the country have the opportunity to block more than a trillion dollars in new entitlement spending and push for state flexibility. Now, more than ever, we need states to take the lead and protect taxpayers and consumers from this disastrous law,” said Ingram.