Costs Of Expanding Medicaid Program May Be Lower Than They Appear

Since health reform became law, states have expressed a great deal of anxiety about expanding their Medicaid programs, releasing studies demonstrating that the state portion of the expansion (the law expands the program to 133% of the FPL) would run in the billions of dollars. But now, a new report from the Urban Institute finds that the expanded population may be healthier than current Medicaid enrollees and that states can lower their Medicaid price tag by expanding their enrollment efforts:

Results from our microsimulation model indicate that the adults who enroll in Medicaid under reform are likely to be more expensive to cover than those who remain uninsured but still not likely to be as expensive as those currently enrolled in Medicaid. […]

The higher the Medicaid participation rate among the eligible population of adults and the less adverse selection that occurs, the lower the average costs will be under reform, and the broader the mix of new enrollees will be in terms of health status. This does not mean that the new population covered by Medicaid will be uniformly in good health since there are still relatively high percentages in fair or poor health and with two or more chronic conditions within the underlying population. But on average, those newly covered are likely to be healthier and less costly than those who are currently enrolled.

In other words, sates will have to expand their enrollment efforts to net healthier (and maybe younger) enrollees who are below the poverty line to balance the costs of covering the sicker population. But that may take some time. The study finds that “a high rate of adverse selection is especially likely in the initial period following implementation of the Medicaid expansion and the other major policy changes associated with health reform, as we expect that those with the greatest health needs will be among the first to enroll.”


Fortunately, states will receive the highest federal matching fund during that critical early period. The federal government picks up the entire tab of Medicaid expansion until 2016 and then pay for 95% of the expansion in 2017, 94% in 2018, and 93% in 2019. As we get into the out years, however, it will be critical for states to enroll more people if they wish to lower their per capita spending.