The Cost of States Not Expanding Medicaid

As the Affordable Care Act (ACA) continues to roll out across the country, a recent study found that states not taking advantage of expanding Medicaid coverage with federal assistance are losing billions of dollars.

The study, conducted by the Urban Institute, estimated that non-Medicaid expansion states are leaving more than 6 million Americans without health insurance and will combine to leave $423.6 billion on the table in Medicaid funds through 2022. Also, hospitals in those states will be missing out on a $167.8 billion boost in their Medicaid funding through reimbursement.

Paying for the Medicaid expansion varies by stat; for example, in Alabama it cost just over $1 billion to meet the ACA standards. By opting not to expand the study reported the state will lose $14 billion in Medicaid funding and $7 billion in hospital reimbursement. Even a more densely populated state like Florida, where the cost to expand would be more than $5 billion, is set to lose $66 billion in funding and reimbursements of $22 billion.

Twenty-four states opted not to expand their Medicaid coverage to the designated level of residents being at or below 138% of the federal poverty level. States that did expand Medicaid have reported their uninsured rates for adults fell from 16.2% to 10.1%, while the rate in non-expansion states has only gone from an average of 20% to just 18.3%.

“The 24 nonexpanding states have rejected federal Medicaid funds projected to equal $42.9 billion in 2016, which would have increased such states’ federal Medicaid receipts by 30.3%,” the authors noted. “To claim those resources, states would need to spend $0.3 billion ($291 million), representing a 0.3% increase over stated Medicaid costs without expansion.”

By following that math, the authors argued that for every dollar states invested in expanding the program the states would receive $147.42 in federal funding — money they are now not going to receive. The researchers also said that expansion of Medicaid would mean adding more than 348,000 jobs to the non-expansion state workforces by 2016.

States also need to consider the fact that the money is coming not from their own coffers, but rather the federal government’s, which reduces state risk while delivering definitive benefits, according to the authors.

“The only question within state policymakers’ control is whether to counter the adverse economic effects of those mechanisms by bringing in federal Medicaid dollars to buy additional health care,” they noted. “Adding these federal dollars to a states’ economy while leaving the ACA’s funding sources unchanged can generate economic growth and employment as found by both CEA (Council of Economic Advisers), and state level analysts.”

Hospitals may have to pay upfront for the Medicaid cuts, and if the states in which they are operating do not expand Medicaid, the hospitals will miss out on making that money back and beyond.

“In nonexpansion states, hospitals will pay the full cost of the ACA’s funding mechanisms, However, they will receive only part of the increased revenue for the newly insured that was included in the ACA’s original design, before the Supreme Court made Medicaid expansion optional for states.”

Not being in an expansion state will cost hospitals an estimated $15.9 billion in Medicaid revenue in 2016 and a whopping $167.8 billion from 2016 until 2022. Looking at 57 other studies done in 35 states about the financial impact of Medicaid expansion, the authors said 16 states showed that the expansion would help their budgets despite some additional costs.

Although the federal help is viewed as a positive, some states have expressed concerns that as administrations and other elected officials change, so too could the funding from Washington.

“Such fears can seem reasonable until one delves into Medicaid’s current budget situation and past budget history,” the authors reported. “The federal Medicaid budget contains many other places to cut.”

They noted that the budget for Medicaid in 2015 is expected to be around $330 billion of which only $42 billion comes from the Medicaid expansion. Furthermore, in the past Congress typically has cut “almost any other part of Medicaid before lower the federal share of Medicaid costs.”

Through 11 laws and more than 100 cuts to Medicaid spending since 1980 the authors reported only once, in 1981 did Congress vote to lower the federal share of Medicaid spending.

“The current structure and past history of federal Medicaid spending shows that, when federal leaders turn to deficit reduction, they will almost certainly seek and find other ways to cut Medicaid without lowering the federal share of Medicaid spending below the ACA’s statutory level,” the authors concluded.