Health-care overhaul: Will its Medicaid expansion overwhelm state budgets?

Monday, October 18, 2010; 6:42 PM

The law's expansion of Medicaid will put massive pressure on state budgets at a time when many are already in crisis.


Twenty states are challenging the law's constitutionality in federal court, arguing that the Medicaid changes effectively require many of them to spend billions of dollars in "an unprecedented encroachment on the sovereignty of the states." Similar concerns have been raised by politicians including Pam Bondi, the Republican candidate for attorney general of Florida, and Rory Reid, the Democratic candidate for governor of Nevada.


The impact will probably be small, but it's hard to say for sure. Technically, Medicaid is a voluntary partnership, with the federal government covering most of the cost and states paying a remaining share calculated according to their wealth. In practice, states would be loath to pull out of Medicaid because they would be giving up billions in federal assistance for their poorest citizens.

Until now, there has been wide diversity among the states on the question of who should be eligible for Medicaid. Some states limit assistance for adults to those who are disabled or truly indigent. Others have devoted extra money to cover, for instance, parents who earn up to at least 150 percent of the poverty level, or about $33,000 for a family of four.

Starting in 2014, the new law will require participating states to cover everyone earning 133 percent of the poverty level or less. It is estimated that this will bring 16 million to 23 million more people into Medicaid. The federal government will pick up nearly all the cost of these newly eligible beneficiaries, starting at 100 percent from 2014 to 2016 and gradually decreasing its share to 90 percent from 2020 onwards.

The impact of this mandate could vary considerably. States such as Texas and Alabama that have had narrow eligibility rules will add far more people to their rolls. But they will also get a lot more federal dollars to cover the extra cost. States such as Massachusetts and New York, whose current rules are more expansive, may see fewer new enrollees, but initially they'll get less federal help to cover them.

Such states could also see savings because many people they have been helping will be eligible for federal subsidies to buy insurance on state-based exchanges.

So what's the bottom line? Estimates vary widely.

In a study for the Kaiser Family Foundation, the Urban Institute estimated that, not counting offsetting savings, between 2014 and 2019, total state spending on Medicaid will increase by $22 billion, 1.4 percent more than they would have spent in the absence of the new law. But that masks considerable differences across states. Four will spend less than they would have otherwise. Nine will increase their spending by 3 or even 4 percent.

While the Urban Institute's analysis tracks with Congressional Budget Office estimates, several states have come up with substantially higher projections.

- N.C. Aizenman

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