Why Medicaid Expansion Is Such A Good Deal For States: 95% Of New Spending Would Come From Feds

Throughout the health care debate, states have complained that the new health care law expands Medicaid for adults at or below 133% of the federal poverty line (FPL) but does not completely fund the state portion of the program. Sen. Ben Nelson (D-NE) almost killed reform by offering an amendment that would have required the federal government to pay for Nebraska’s entire expansion and at least 20 states are now suing the federal government over what they believe is an ‘unfunded mandate’ to open the program to more uninsured residents.

Supporters of the legislation have always found this position a bit bizarre, since the law provides states with a lot of extra cash, insures more residents and — consequently — allows states to “reduce payments they make to support uncompensated care costs.” The federal government picks up the entire tab of Medicaid expansion until 2016. The government will pay for 95% of the expansion in 2017, 94% in 2018, and 93% in 2019. Beginning in 2020, the federal government will fund 90% of the expansion. Significantly, the law will also allow an enhanced match to the 11 states that already cover childless adults below 133% of the federal poverty level (the 11 states will begin receiving higher federal matching funds for this population until all states receive 93% federal matching rate by 2019).

Indeed, a new study by the Kaiser Family Foundation predicts that “increases in state spending are small compared to increases in coverage and federal revenues and relative to what states would have spent if reform had not been enacted.” Under one scenario:

[F]ederal spending would increase by $443.5 billion and state spending would increase by $21.1 billion between 2014‐2019. Thus about 95 percent of all new spending would be by the federal government…The Medicaid expansion will result in large reductions in the uninsured across states, but especially in states that have higher levels of uninsured today. Overall, the Medicaid expansion is expected to result in a decrease in the number of uninsured of 11.2 million people, or 45 percent of the uninsured adults below 133 percent of poverty.



In other words, states will be able to cover a large number of residents at little direct cost, and despite all their rhetoric and complaints, they recognize a good deal when they see one. In April, Arizona — which is suing over the law — actually passed legislation to protect its share of federal Medicaid funds. The state had eliminated its CHIP program to close a budget hole, but after the health law passed, it restored state funding to the program in order to qualify for the new federal Medicaid funds. (The law requires states that want to continue receiving federal health care funds to maintain eligibility in Medicaid and CHIP.) Gov. Jan Brewer (R-AZ) “urged legislators to restore the programs,” proving once and for all that the money states will receive under reform will trump any ideological repeal effort.

As Emma Sandoe explains in this report, states that choose to opt out of the Medicaid expansion will lose billions of dollars in federal funding and will be no closer to grappling with the strained public health programs in their states.