STUDY: Medicaid Expansion Saves States Billions

Republican politicians across the country claim that Obamacare’s expansion of Medicaid, the widely popular program which makes health insurance available for lower-income Americans, will increase costs for states. Ten Republican governors have pledged not to accept the Medicaid expansion funds and 22 other governors are considering turning down the money.

Directly disproving Republican claims, an extensive study reveals that the Affordable Care Act significantly benefits states by reducing their uncompensated care costs. In the months preceding the passage of the ACA, the President’s Council of Economic Advisors released a report on the impact of the bill on state budgets. Though the bill hadn’t yet passed when the report was written, the Council studied the Medicaid expansion which has since become law. The Council looked at the uncompensated care spending of 16 states demographically and geographically representative of the country (AR, CA, FL, ID, IN, IA, ME, MI, MN, MO, NE, NC, OR, PA, VT, WY).

The report reveals that states are currently spending billions each year providing coverage to the uninsured in three ways. Obamacare addresses each source to reduce state health insurance costs.

1. Under Obamacare, states no longer have to finance health insurance for people above 133 percent of the federal poverty level. Many states fund health insurance programs which cover residents living at more than 133 percent of the federal poverty level (FPL). Obamacare makes residents at higher than 133 percent of the FPL eligible for subsidized health insurance through state insurance exchanges at no cost to states. For example, Idaho would no longer have to fund health insurance for its 63 percent of uninsured residents who are above 133 percent of the FPL, reducing its $47 million annual uncompensated care cost to $17.3 million.


2. Under Obamacare, states pay billions less to cover people below 133 percent of the federal poverty level. States pay billions in health insurance programs for residents living at less than 133 percent of the FPL. After five years of Obamacare, the federal government will cover 90 percent of insurance costs for state residents making less than 133 percent of the FPL. For the first three years of the expanded Medicaid program, the federal government will cover 100 percent of Medicaid costs. The surveyed states will save $4.2 billion (100 percent of their uncompensated care costs) annually for the first three years, and $3.0 billion annually starting in 2019. For example, Michigan pays $212 million annually in uncompensated care costs. After five years of Obamacare, Michigan would have to pay only $68 million annually in the expanded Medicaid program.

3. By making health insurance universally available, Obamacare slashes the “hidden tax” states pay in health insurance premiums. States pay a “hidden tax” in the form of higher insurance premiums to account for the cost of covering the uninsured. “By greatly reducing uncompensated care,” the Council explains, Obamacare works to “reduce this hidden tax.” For example, North Carolina would see its annual $58.6 million insurance premium “tax” reduced to reflect a much smaller number of people without health insurance.

This study blows a hole in Republican claims that Obamacare has ill economic effects. In reality, Obamacare saves states money while improving the overall economy. Republicans who care more about fiscal responsibility than political gamesmanship would do well to embrace it.

Ben Sherman