The Growing Medicaid Expansion Bubble

Justin Haskins Heartland Institute
Published September 3, 2015

Consumer Power Report #471

The majority of controversial issues involving the Affordable Care Act (ACA) have stemmed from its mandate that all people have health insurance or else face a fine (or is it a tax?) and its transformation of the U.S. health insurance system from a largely private marketplace to a government-manipulated, exchange-based market. While both issues are tremendously important, one of the most damaging Obamacare provisions – the expansion of Medicaid – has largely gone unnoticed by the general public.

Despite the lack of attention the issue is getting, the growing Medicaid population could lead to state government meltdowns around the country and a national health care crisis for which most Americans are completely unprepared.

One of Obamacare’s chief initiatives is providing for the expansion of Medicaid. The legislators who wrote ACA understood taxpayer subsidies alone would not be enough to cover the roughly 30 million Americans who did not have health insurance at the time of the law’s passage, so they created a provision in Obamacare that incentivizes states to expand Medicaid programs by offering to pay 100 percent of the cost from 2014 through 2016. The law requires the national government to gradually reduce its share down to 90 percent by 2020. At that time, the remaining 10 percent of costs must be covered by the states.

In theory, shifting the expansion burden to the states slowly allows state governments the time necessary to increase tax revenues or make budget cuts to cover the additional expenses. In practice, this works only if the number of people who enroll in Medicaid matches states’ expectations. If too many people enroll in Medicaid, the burden on the states will be too costly and could cause significant budgetary and health-care-related problems.

Unfortunately, dramatic and unexpected Medicaid enrollment increases is precisely what has already occurred in many of the states that have chosen to expand. For instance, in Colorado the number of additional people enrolled in Medicaid and the Children’s Health Insurance Program (CHIP), which is also receiving a significant and temporary federal funding boost, grew by 477,000 from 2013 to February 2015, according to the Centers for Medicare and Medicaid Services. That’s an increase of 60 percent, well beyond the growth state officials initially anticipated.

According to the Colorado Health Institute (CHI), more than 21 percent of all Coloradoans are now enrolled in Medicaid or CHIP, double the percentage of the population enrolled in 2009.

Exploding Medicaid and CHIP enrollment across the nation could mean states are going to end up on the hook for millions more than they can afford, and there’s no sign state governments are setting aside funds to prepare for what will likely be future budget shortages, and possibly even crises.

Making matters worse, the national government has promised to cover 90 percent of Medicaid costs through 2022, but it can choose to change the rate it covers at any time, which means states have no way of knowing for certain how much will be needed in less than 10 years to pay for state Medicaid programs.*

The combination of these factors is creating a rapidly expanding Medicaid bubble for the states. If the national government decides to reduce its contribution toward covering expansion costs below 90 percent, the Medicaid bubble will pop, suddenly forcing states to pay for programs they cannot afford or slash budgets. This is particularly problematic now that there is a federal mandate requiring all Americans to have health insurance, because if state governments try to cut their Medicaid costs by adjusting eligibility requirements and forcing people off the rolls, those individuals will still need to purchase health insurance, which they can’t afford, or be forced to pay significant penalties, which they also can’t afford.

The reality is it will be politically difficult, if not impossible, to reduce Medicaid rolls once they have been expanded, regardless of whether the states can afford it.

Interestingly, the fallout of this potential disaster could lead to a greater role for the national government in health care. Faced with the decision of cutting government services, removing individuals from Medicaid rolls, or begging the national government for more cash, it’s easy to see how state legislatures would find it most politically expedient to ask for federal dollars rather than make difficult decisions that could cost them votes. It’s at this point we could see a major push for a national single-payer health insurance system, which will likely be viewed as a savior for states looking to escape their budget woes.

Many states have happily signed on to expand Medicaid, not because they believed it would be in the best interests of their citizens in the long-term, but rather because political opportunists in state capitals are using Obamacare to further their own ambitions. Meanwhile, taxpayers, newly enrolled Medicaid recipients, health care workers, and the rest of society will all be left with the consequences: a broken, failing health care system and massive budget shortfalls.

— Justin Haskins

*Editors note: This text originally read: “Making matters worse, the national government has promised to cover 90 percent of Medicaid costs only through 2022, which means states still have no way of knowing how much will be needed in less than 10 years to pay for state Medicaid programs.”




A New York Russian Orthodox mom has won the right to exempt her autistic son from getting the school-mandated measles/mumps/rubella vaccination after citing her moral opposition to abortion, The Post has learned.

The woman said she objected on religious grounds because of the MMR vaccine’s link to the cells of aborted fetuses.

The city Department of Education rejected her bid for exemption after questioning the sincerity of her religious beliefs during the summer and fall of 2013.

But the mother, a Russian immigrant whose name was withheld under privacy laws, filed an appeal with the state Education Department.

Education Commissioner Mary Ellen Elia sided with the parent and granted the student exemption in an Aug. 3 ruling.

SOURCE: Carl Campanile, New York Post


Regulating fast food kids’ meals that include toys may end up making the meals healthier, according to a new study.

If a proposed new policy in New York City is approved, then fast food meals that come with toys would contain fewer calories overall, and fewer from fat and sodium, researchers report.

“We can create policies that will nudge us toward healthier behaviors,” said senior author Marie Bragg, of NYU Langone Medical Center in New York.

The proposed policy, which was introduced to the New York City Council, says fast food meals that come with a small toy must include a serving of fruit, vegetable or whole grain. The law would also limit meals with toys to no more than 500 calories, and it would place additional restrictions on fat and salt.

SOURCE: Reuters


Around 300,000 people in Massachusetts will see their health insurance costs rise by an average of 6.3 percent in the first quarter of next year.

The Massachusetts Division of Insurance announced the increase after a review of the rates for the insurance market that covers individuals and small businesses for those whose policies are up for renewal in early 2016.

“The Division of Insurance recognizes that escalating health insurance costs are a burden on employers and employees alike, and continues to push carriers to be diligent in looking for new and more effective cost containment solutions,” the department said in a prepared statement.

The 6.3 percent average base rate increase is the highest first-quarter increase since 2011. In the first quarter of 2014, individuals and small business saw their rates increase by just 1.9 percent. Other first quarter rate increases in recent years have been between 3 and 5 percent, down from a height of 7.4 percent in 2011.

SOURCE: Shira Schoenberg, Mass Live


The state improperly billed $32.2 million for home health services it could not document over a 3-1/2-year-period and should return the money to the federal government, according to a U.S. Office of Inspector General report released Monday.

A random audit of 100 claims submitted from 2008 to 2011 found 17 to be in error because they did not contain proper documentation, according to the report. The deficiencies included nurses not making required visits, companies using untrained home health aides, and failing to maintain patient files.

Based on this “error rate,” investigators estimated the state Department of Human Services would have improperly overbilled for $32.2 million, or about 8 percent of the $393 million the U.S. Department of Health and Human Services paid New Jersey to provide home care to elderly and disabled homebound residents, according to the audit Inspector General for the U.S. Department of Health and Human Services.

SOURCE: Susan K. Livio,


Although most Americans think mental health care is important, they often believe it’s expensive and hard to get, a new survey shows.

In questioning more than 2,000 adults, nearly 90 percent said they place equal value on mental and physical health. But one-third said mental health care is inaccessible. And 40 percent said cost is a barrier to treatment for many people, the survey found.

Forty-seven percent of respondents thought they have had a mental health condition, but only 38 percent of them had received treatment. Of those who were treated, most thought it was helpful, including 82 percent who got psychotherapy and 78 percent who received medications. …

The survey findings were released Sept. 1 by the Anxiety and Depression Association of America, the American Foundation for Suicide Prevention, and the National Action Alliance for Suicide Prevention.

SOURCE: HealthDay News