Study: States will bear little cost of Medicaid expansion under health-care law

By Alec MacGillis
Washington Post Staff Writer
Thursday, May 27, 2010

The federal government will bear virtually the entire cost of expanding Medicaid under the new health-care law, according to a new study by the Kaiser Family Foundation that rebuts governors' protests about the impact on strapped states.

Roughly half of the increase in health insurance coverage under the new law is expected to come from expanding Medicaid in 2014 with a new nationwide eligibility threshold of 133 percent of the poverty level -- $14,400 for a single adult or $29,300 for a family of four, under the current guidelines. A disproportionate share of the 16 million people expected to enroll in the expanded Medicaid live in states in the South and West that have stringent eligibility rules for low-income adults.

Governors of many of those states predict fiscal calamity, and some have cited the Medicaid expansion in the lawsuits they have filed against the new law, saying it violates their states' rights. But the Kaiser study released Wednesday predicts that the increase in states' spending will be relatively small when weighed against the broad expansion of health coverage for their residents and the huge influx of federal dollars they will receive.

And the small increase in state costs may be canceled out by savings from no longer having to subsidize the care of uninsured people, study co-author John Holahan said.

"It's absurd," said Holahan, an Urban Institute researcher, of the states' gloomy predictions. "They come out ahead. It's just crazy."

The federal government currently shares the cost of Medicaid with the states, from splitting it 50-50 in wealthy states to picking up 75 percent in poor states. Under the new law, the federal government will cover 100 percent of the cost for all newly eligible people through 2016, a rate that will step down to 90 percent in 2020 and beyond. It will pay for this through industry fees, cuts elsewhere in the health-care system and higher taxes on the wealthy.

Overall, the study predicts, the federal share of the expansion cost will be between 92 and 95 percent from 2014 through 2019. While Medicaid enrollment nationally is predicted to increase by 27 percent by 2019, state spending will increase 1.4 percent, and federal spending will increase by 22 percent.

This assumes relatively low enrollment by the newly eligible. But the study also produced projections assuming better outreach and higher participation, and these also showed relatively small increases in state spending.

Current Medicaid rules vary widely. In many Northeastern and Midwestern states, parents are eligible if they have incomes up to double the poverty level, or sometimes above, whereas in other states, such as Texas, Virginia and Missouri, only the disabled or truly indigent are eligible.

In states that have invested most in expanding Medicaid to low-income adults, the law will have relatively little effect. In New York, for example, the Medicaid population is expected to increase by 6 percent by 2019, and the cost impact is expected to be negligible.

At the other end of the spectrum, there is likely to be a huge jump in enrollment -- for example, a 45 percent increase is predicted in Texas. But because of the high federal match rate, the expected increase in state Medicaid spending in such states will be small -- 3 percent in Texas.

The report predicts that the District of Columbia will see a 16 percent increase in enrollment and a 1 percent increase in costs; Maryland, a 32 percent enrollment increase and a 2 percent cost increase; and Virginia, a 42 percent enrollment increase and a 2 percent cost increase.

Seen more broadly, states that had strict eligibility will make out well, since much of their Medicaid population will be covered at the high federal match rates for newly eligible people, whereas most of the Medicaid recipients in the other states will be covered under the existing lower rates. In Texas, the overall federal match rate will go from 60 to 67 percent, while in New York it will remain at about 50 percent.

Alan Weil, executive director of the National Academy for State Health Policy, said some states may be protesting nonetheless because they are worried about affording even their small share of the expansion -- and because they may be less committed to Medicaid generally. Someone who is offered a $200 pair of shoes for $20, he said, will appreciate that only if he likes the shoes -- and if he has $20.

"This is a pretty good deal," Weil said. But the question is whether "states focus on what they're going to get versus whether they can afford this smaller amount they have to put in."

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