Arkansas says Medicaid expansion saves $372 million. Let’s break down those numbers.

July 18, 2012

Governors' gripes about the Medicaid expansion almost always have to do with the price tag. Texas Gov. Rick Perry, a Republican, says the program will "bankrupt" his state. Montana Gov. Gary Schweitzer, a Democrat, says his state can't "just print money" to make it work.

That's not, however, what we're hearing from Arkansas: Officials there estimate that the Medicaid expansion would save the state $372 million in the first six years.

Arkansas' analysis is one of the most detailed by a state so far, probing just about every way that Medicaid impacts state budgets. It's worth looking at to get a more complete understanding of the costs and savings a state accrues from participating in the program.

The analysis starts off looking at the budget impact in 2015, where the state expects to save $38.8 million. Here's what that looks like in chart form:

Let's unpack this a bit. On the right are all the costs of the Medicaid expansion. Arkansas wouldn't pay for Medicaid enrollees who are newly eligible under the health law's expansion. They would, however, have to pay about 30 percent of the cost for those who are already eligible but had never signed up. A lot of health policy experts think that, given lots of talk about Medicaid in 2014, a lot of those folks will come out of the woodwork. And that would cost the state $25.2 million.

On top of that, a larger Medicaid program means more administrative costs. Arkansas estimates that it would spend $6.9 million on processing claims and $10 million on outreach, customer support and processing new claims.

Those are the costs. But there are also $131.5 million in savings that comes from three sources. There would be a reduction in uncompensated care —  the medical bills that don't get paid — as more Arkansas residents gained coverage. State tax revenue would increase with the influx of federal dollars. The state also gets to transfer its medically needy population —  those who spend nearly all of their income on medical bills to qualify for Medicaid — into the federally financed expansion.

Overall, the state ends up saving $89 million in 2015. If the budget that year is similar to the Arkansas budget for fiscal 2013 —  $4.7 billion —  that would amount to 2 percent of overall state spending.

That's the first year, at least. The savings start getting smaller in 2017, when Arkansas has to chip in 5 percent of the cost for the newly eligible population. By 2021, when Arkansas' contribution bumps to 10 percent, the state starts losing money on the expansion:

Here's a breakdown of what the costs look like in 2021:

Arkansas ends up spending $3.4 million more on Medicaid in 2021 than it would by not participating in the expansion. Most spending goes toward its 10 percent share in covering the newly enrolled, which comes in at $112.7 million. At the same time, though, savings from the reductions in uncompensated care keep rising, partially offsetting those costs.

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Brad Plumer | July 18, 2012