The Washington Post

How the Medicaid expansion could actually save states money

Republican governors opposing the Medicaid expansion have focused on the costs their states would have to take on. But there are also ways that the expansion would save state governments money, helping to offset at least some of the new upfront Medicaid costs. And in some cases, they're likely to save states more money on Medicaid than they currently are spending.


First, many state and local governments help hospitals offset the cost of care they provide to uninsured patients who can't pay for medical care — paying about $10.5 billion, or 18.5 percent, of the cost of uncompensated care, according to a 2008 study cited by the Urban Institute. Having more patients on Medicaid would help bring down those costs for everyone, which is why hospitals are lobbying hard for states to participate in the expansion.

Second, the Medicaid expansion would also reduce state spending on mental health services for lower-income and uninsured patients, which has also grown over time. State and local governments covered 42 percent of the cost of state mental health expenditures in 2009, totaling $16.3 billion. That covered mental health services provided by state mental hospitals, emergency ER visits and, increasingly, community health clinics.

Enrolling more state residents into Medicaid would help offset some of the spending on mental health that state and local governments are shouldering already. States will have to begin contributing to Medicaid coverage as well, starting in 2017, but they will still be matched by federal dollars at a 9:1 ratio, getting more bang for the buck on the money they do spend.

Advocates for mental health are appealing for states to join the Medicaid expansion on similar grounds. "The expansion of Medicaid also requires those who are newly eligible to receive mental health and substance use services at parity with other benefits. State participation in the Medicaid expansion is therefore critically important," Mental Health America said in a statement after the ruling.

Overall, the savings will likely bring down the upfront costs to states of the Medicaid expansion. The Center on Budget and Policy Priorities calculates that state Medicaid spending will ultimately rise by 2.8 percent by 2022 if they join the expansion. However, that figure "actually overstates the net impact on state budgets because it does not reflect the savings that state and local governments will realize in health-care costs for the uninsured," says CBPP spokesperson Shannon Spillane. "In fact, states could end up with a net gain."

Without factoring in these hospital and mental health savings, only Maine, Massachusetts, and Hawaii are likely to see net savings* from participating in the Medicaid expansion, according to a report that the Urban Institute produced for the Kaiser Family Foundation. The GOP states that have opposed the expansion will pay more upfront, largely because they already have more restrictions on who can participate. But with the savings from uncompensated care and mental health, the number of states seeing net savings could rise.

*Correction: An earlier version of this post stated that these were the only states to see net savings according to the report, but the authors explain that the figures cited don't factor in uncompensated care and other savings.



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Suzy Khimm · July 5, 2012

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