Research & Commentary: Medicaid Expansion Costs Continue to Grow

Published August 30, 2016

Thirty-one states, in addition to the District of Columbia, have chosen to expand their Medicaid programs under the Affordable Care Act (ACA), and 19 have refused to do so. Medicaid is already placing severe financial strain on state budgets, and the program has a proven track record of failing to provide cost-effective and efficient care for those in need.

Amongst the most significant problems with Medicaid expansion is a lack of clear funding in the future. The federal government has promised to cover 100 percent of the costs of newly eligible enrollees until 2017, but the matching rate declines over time, so states will eventually have to find other ways to pay for the newly eligible population.

In a new report from the Department of Health and Human Services (HHS), an examination of Medicaid’s finances found the average cost of ACA’s Medicaid expansion enrollees was nearly 50 percent higher in fiscal year 2015 than the levels HHS had projected the previous year. In 2015, Medicaid expansion enrollees cost an average of $6,366; HHS had predicted it would be $4,281.

HHS also reported Medicaid spending reached $554.3 billion in fiscal year 2015, which is 5 percent higher than its projections.

Looking more closely at the HHS report, Brian Blase of the Mercatus Center at George Mason University wrote in Forbes costs for newly eligible adults were not decreasing as expansion supporters predicted. In the report, HHS found newly eligible adult Medicaid enrollees will cost about 23 percent more than the previously eligible Medicaid enrollees.

The cost of Medicaid continues to expand at the state level as well. Arkansas’ experience serves as both an example of the high cost of Medicaid expansion and as a warning to other states. According to The Washington Post, the initial projections by an actuary firm hired by Arkansas to review the plan found the premium support model would cost federal taxpayers $18.9 billion over the next ten years and an additional $1.59 billion from Arkansas taxpayers. Peter Ferrara, a senior fellow of The Heartland Institute, warns total future costs to state governments are estimated to exceed the funds provided by the national government, with the shortfall reaching as much as 66 percent of state expenditures. States will find the situation unsustainable.

In addition to the skyrocketing cost of Medicaid, it is not even clear the reform has even improved overall health insurance coverage or health care outcomes. A 2013 study published in The New England Journal of Medicine found although Oregon’s Medicaid expansion program created some improvements, increasing the overall use of health care and financial assistance, the state’s expanded Medicaid program failed to achieve its primary goal: improving overall health.

Medicaid expansion is extremely difficult to roll back, because federal law effectively blocks states from backing out of expansion under a provision called “Maintenance of Effort,” which requires states to fund a program at the initially agreed-upon level, regardless of the amount of federal funding received.

State legislators should continue to resist Medicaid expansion and instead reform their fiscally unsustainable program in ways that offer better care to enrollees and lower costs for taxpayers. Instead of expanding a flawed Medicaid model that is too costly, delivers subpar health care, and shifts more power to the national government, state lawmakers should focus instead on reforming the current system before choosing to expand it.

The following documents examine state Medicaid reform.

Ten Principles of Health Care Policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.

The Growing Medicaid Expansion Bubble
In this edition of the Consumer Power Report, Executive Editor Justin Haskins examines Medicaid expansion and all the problems it has created for states, physicians and patients. “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,” wrote Haskins.

Here’s Why States Must Resist the Temptation to Expand Medicaid – 420cec6d5b80
Sally Pipes, president of the Pacific Research Institute, argues in this Forbes piece states should resist any push to expand Medicaid. Pipes recommends replacing Medicaid entitlements with block grants. “If governors and state legislatures really want to help low-income folks while keeping their budgets under control, they should insist Washington[, DC] replace the failed, open-ended Medicaid entitlement with block grants pegged to inflation,” wrote Pipes.

Government Report Finds Obamacare Medicaid Enrollees Much More Expensive than Expected – 75a85aba2dd0
Brian Blase of the Mercatus Center at George Mason University wrote in Forbes the costs for newly eligible adults were not decreasing as expansion supporters predicted they would. Blase says in a new report, HHS says newly eligible adult Medicaid enrollees cost about 23 percent more than the Medicaid enrollees who were eligible prior to expansion.

Research & Commentary: Ohio Medicaid Expansion Failures–commentary-ohio-medicaid-expansion-failures?source=policybot
Few states demonstrate the failure of Medicaid expansion better than Ohio. Gov. John Kasich’s (R) expansion of Medicaid is already beginning to hemorrhage expenses the state’s budget may not be able to withstand. In this Research & Commentary, Senior Policy Analyst Matthew Glans argues expansion is an expensive endeavor research shows fails to provide better or more affordable health care.

The Oregon Experiment—Effects of Medicaid on Clinical Outcomes–effects-of-medicaid-on-clinical-outcomes?source=policybot
This article from The New England Journal of Medicine examines Medicaid outcomes in Oregon. Oregon gave researchers the opportunity to study the effects of being enrolled in Medicaid (compared to being uninsured) based on data from a randomized controlled trial, the “gold standard” of scientific research. The results showed no improvement in health for enrollees, but it did reveal better financial protections for patients and increased medical spending.

Research & Commentary: States Should Innovate, Not Expand Medicaid–commentary-states-should-innovate-not-expand-medicaid?source=policybot
Matthew Glans, senior policy analyst for The Heartland Institute, discusses how expanding Medicaid can cause problems that extend beyond state budgets and the health care industry. Glans says better options are available: “It is important to remember government spending creates little or no income or economic growth; it is merely the redistribution of tax dollars taken from the pockets of taxpayers.” 

Policy Tip Sheet: Medicaid Expansion
Kendall Antekeier of The Heartland Institute explains why states should avoid Medicaid expansion and instead reform this fiscally unsustainable program in ways that would offer better care at a lower cost to taxpayers. 

The Empty Promises of Arkansas’ Medicaid Private Option–of-arkansas-medicaid–private-option?source=policybot
The Foundation for Government Accountability examines the empty promises of Arkansas’ Private Option program for Medicaid. It rebuts, point-by-point, direct quotes from supporters, including media interviews, floor speeches, and social media posts. 

Why States Should Not Expand Medicaid
Writing for the Galen Institute, Grace-Marie Turner and Avik Roy outline 12 reasons states should not expand Medicaid and should instead demand from Washington, DC greater control over spending to better fit coverage expansion to states’ needs, resources, and budgets.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at, The Heartland Institute’s website at

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