Study: Refusing Medicaid expansion will cost states billions of dollars

December 6, 2013

Not expanding Medicaid could cost Texas Gov. Rick Perry’s state $9 billion in 2022. (Richard Shiro/AP)

When the Supreme Court ruled in 2012 that the federal government could not compel states to expand their Medicaid programs under the Affordable Care Act, it gave Republican opponents of the measure the opportunity to decline to participate in one of the law’s central tenets. But a new study estimates the decision not to participate will cost those states billions of dollars over the next decade — costs that will be passed on to taxpayers.

The Affordable Care Act requires the federal government to pay 100 percent of the costs of expanding Medicaid for three years. After that period, the law mandates the federal government pay 90 percent of the costs of expansion.

The 10 percent investment that would be left to the states, the study’s authors conclude, would be justified by the huge investments from the federal government.

“States that choose to participate in the Medicaid expansion will gain considerable new federal funds,” the study’s authors write. “States often seek to increase their share of federal funds, lobbying for military bases, procurement contracts, and highway funds. Federal funding provides direct benefits and bolsters local economies.”

Conversely, states that refuse Medicaid expansion will continue to be on the hook for billions in uncompensated care costs – as when uninsured residents visit the emergency room. By refusing to expand Medicaid, Texas will forgo $9.2 billion in federal funding in 2022, the authors said. Florida, another state that has said it won’t expand Medicaid, stands to lose more than $5 billion.

Georgia, Missouri, North Carolina and Virginia will all forgo more than $2 billion in federal funding, while Louisiana, Oklahoma and Wisconsin will miss out on more than $1 billion. Both Tennessee and Indiana, two states that have yet to formally decide whether to expand the program, face losing more than $2 billion in federal funding if they decide against expansion.

The study, conducted for the pro-health-care reform Commonwealth Fund, was authored by Sherry Glied, dean of the Wagner Graduate School of Public Service at New York University and a top official in the Health and Human Services Department until 2012, and Stephanie Ma, a researcher at the Wagner School.

Taxpayers in states that don’t expand their Medicaid programs will still be on the hook for federal taxes aimed at covering costs in other states, without benefiting on their own, the authors conclude. And no state that rejects Medicaid expansion will actually save money, the report finds.

Medicaid expansion will constitute an increasing share of federal funds allocated to the states in coming years. On average, the amount of new federal funds flowing to states that expand Medicaid will be more than twice as large as the amount of federal highway dollars by 2022.

If every state expanded Medicaid, the new program would cover up to 21 million Americans who make less than 138 percent of the federal poverty level.

In most cases, the new investment states will have to cover amounts to far less than the budgets those states use to attract private business investments. By 2022, Kentucky, for example, will spend $301 million to cover additional low-income residents; at the same time, the state will spend $1.7 billion in incentives and advertising to attract new businesses.

Read the study here.

Reid Wilson covers state politics and policy for the Washington Post's GovBeat blog. He's a former editor in chief of The Hotline, the premier tip sheet on campaigns and elections, and he's a complete political junkie.
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