Thanks to the Supreme Court’s ruling in NFIB v. Sebelius, states have a choice about whether to expand Medicaid eligibility as part of the Affordable Care Act (ACA). State Medicaid directors currently oversee a patchwork of eligibility standards, which for the most part cover low-income families and disabled people. The health reform law calls for states to expand Medicaid eligibility to adults age 18 to 64 with income under 138 percent of the federal poverty level, starting in January 2014. The newly eligible Medicaid population is expected to be mostly male, and many will be single adults, who will have different care needs than current Medicaid enrollees do.  New Medicaid eligibles via the ACA expansion option, especially childless adults, will likely have a pent-up demand for health care services.

Estimates of how many people will become newly enrolled in Medicaid vary widely. The Congressional Budget Office (CBO), expects at least 16 million new enrollees to supplement the 68 million currently enrolled in Medicaid. The Centers for Medicare and Medicaid Services (CMS) actuaries projected a much larger enrollment increase: 24 million by 2016 and 28 million by 2019. ACA offers states with enhanced federal match – 100 percent in CY 2014-2016 and thereafter phasing down from 95 percent to 90 percent. This compares to the standard federal Medicaid match rate of 50 percent to about 77 percent, which varies based on a state’s relative per capita income.

Six Reasons to Doubt Medicaid Expansion is a Good Deal for States

The flush of new federal money for Medicaid – at least $1 billion and probably at lot more in many states – may weigh heavily in favor of expansion as state legislators and governors make their decisions. Since the federal government will cover  the bulk of the cost of covering newly eligible beneficiaries under the ACA option, states may expect to get a pretty good deal overall.

However, it’s not so simple as that. A recent report from the Heritage Foundation, a conservative think tank, lists six reasons why states should doubt the low projected state cost of expanding Medicaid. Some of those reasons are in my own list of arguments for and against states opting for the ACA Medicaid expansion:

1. The high match rates might go away:
The federal government’s financial malaise is worsening, particularly because of the high cost of Medicare and Medicaid. States that choose to expand Medicaid must face the risk that the federal government will back out of its commitment to fund 90 percent or more of the cost for new enrollees, leaving states with a grim decision about whether to pay the cost themselves or to cut thousands if not millions of people from the program.

2. It is unlikely states will reduce spending on the uninsured:
Another argument in favor of the Medicaid expansion is that it will save states money they now spend on care for uninsured patients. However, the report warns those savings are not likely to appear.

3. The “woodwork effect” will increase Medicaid enrollment:
The combination of the ACA’s Medicaid eligibility expansion, streamlined eligibility and enrollment rules, pre-screening in health insurance exchanges (HIX), parental coverage mandate for both Medicaid eligibility and subsidized exchange coverage, individual mandate, and massive outreach will bring individuals “out of the woodwork” to apply for Medicaid. States will receive the lower existing federal match rates for people who were eligible for Medicaid before the expansion but who did not enroll, leaving states with much higher costs.

4. States will have higher administrative costs:
States will no doubt have larger administrative costs if they choose to expand Medicaid. The federal match for those costs remains unchanged.

5. There will be some savings if potential Medicaid enrollees instead are insured through exchanges:
The Heritage Foundation’s argument is a little strained here. But essentially it is saying that, in states not expanding Medicaid, people with incomes from 100 percent to 138 percent of federal poverty will be eligible for health insurance exchange subsidies, which the federal government pays for entirely.

6. Estimates of new tax revenue because of Medicaid investments might not be accurate:
The federal government’s new Medicaid dollars will end up paying physicians, hospitals, pharmacies, and other providers. Those providers will then pay state income taxes on a larger amount of income, generating more revenue for states. The foundation’s report questions that assumption.  To read the full report, click here (PDF).

In contrast, liberal researchers and wonks suggest that, while ACA increases state Medicaid costs, the increased federal funding for eligibility expansion far exceeds the added costs to state budgets.  For example, in a new report – The Cost and Coverage Implications of the ACA Medicaid Expansion: National and State-by-State Analysis – the Urban Institute attempts to make the case that expansion is a good deal for states.

Expect this debate to continue and heat up as state legislatures return in January.

Again, for a list of some of the key reasons for and against a state opting for ACA Medicaid eligibility expansion, please read my earlier post.

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Kip Piper is a Medicare, Medicaid, and health reform consultant, speaker, and author.  A senior consultant with Sellers Dorsey, a national healthcare consultancy, as well as an advisor with Fleishman-Hillard and TogoRun.  Kip advises health plans, hospitals and health systems, states, drug and device manufacturers, and investment firms throughout the U.S.  For more, visit KipPiper.com.  Follow on Twitter at @KipPiper and connect with Kip on LinkedIn.