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The cost of the Medicaid opt-outs (in one chart)

The American Action Forum Tuesday morning released a report that looks at how states opting out of the Medicaid expansion could impact the federal budget. It predicts, if states decline to participate, the federal government would be on the hook for higher spending -- even as the health-care law extended coverage to fewer people.

The federal government would see significant savings by not having to pay for the Medicaid expansion in states that choose not to participate. But it would end up spending even more covering private insurance subsidies for some of those no longer eligible for the entitlement program.

Here's what that looks like in the Forum's model, if the six states that have promised to opt out actually follow through:

Between 2014 and 2021, the federal government saves $119.6 billion on financing the Medicaid expansion. But it would end up spending $195.4 billion paying for insurance subsidies for those who earn between 100 and 133 percent of the poverty line.

On the balance, if these six states opt out, the Forum estimates that the federal government would be on the hook for $75.8 billion more in spending.

Fewer people, its worth pointing out, are gaining coverage under this scenario. Those below the poverty line would fall into a sort of "donut hole" if a state does not expand, as they are ineligible for subsidized, private coverage. More on that here.

There's another group of people eligible for the expansion, those who earn between 100 and 133 percent of the poverty line -- and they would be eligible for subsidized, private health insurance. The Forum estimates there are 4.4 million people in this situation in these six states, but that only 3.2 million will actually buy coverage. Some might get deterred by the cost-sharing requirements. One study during the health-care debate estimated that Medicaid patients would end up spending seven times as much in out-of-pocket costs if enrolled in a private plan, because Medicaid has low cost-sharing requirements.

The report also expects that 3.2 million number to begin declining in 2018 if the inflation of medical cost continues to grow faster than the rest of the economy, and health coverage becomes more of a financial strain for low-income Americans. That's why you see federal spending on exchange subsidies start to decline that year.

How could the federal government end up spending more money to cover fewer people? It mostly comes down to the fact that Medicaid coverage tends to be less expensive than private health insurance coverage. Per enrollee spending in Medicaid came in at $6,775 in 2010. The average premium for an employer-sponsored plan that year was $15,073.

A number of factors explain why Medicaid costs less. It tends to pay doctors lower reimbursement rates than private plans. About 7 percent of the program's funds go toward administrative costs, about half the rate seen in private plans. What exactly this means for the health of its enrollees certainly can be -- and is being -- debated.

That lower spending in the Medicaid programs explains how, if states opt out of the expansion, the federal government could be on the hook to spend more money -- all while covering fewer people.

We could get more clarity on this subject later Tuesday afternoon. The Congressional Budget Office expects to put out its own report, around 2 p.m., that updates the budgetary impact of the Affordable Care Act to reflect the Supreme Court ruling.



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Ezra Klein · July 24, 2012

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