Comparing Spending Predictions on the Supreme Court Ruling on Medicaid

Drew Gonshorowski / July 06, 2012

It is clear that the costs associated with the Supreme Court ruling on Medicaid expansions will be a difficult and contentious topic. Some claim that the ruling will do very little to the spending projection or even create savings. Some estimate that spending will increase dramatically, possibly by $100 billion a year. More conservative approaches, including from The Heritage Foundation, suggest an increase in spending between $34 billion and $90 billion over the next 10 years.

Medicaid Ruling Leads to No Effect or Savings

Paul Van de Water, Judy Solomon, and other analysts on the left argue that, due to people under the federal poverty level (FPL) not being able to receive subsidies for entering exchanges—combined with the possibility of Medicaid not being expanded in states—there will be little change or savings in the Medicaid program, because there will be more people below 100 percent of FPL than between 100 percent and 138 percent.

The savings from not insuring individuals under 100 percent of FPL, they conclude, will offset the spending increase from shifting people to exchanges. While the authors do not provide estimates, the Congressional Budget Office (CBO) scoring estimates in the past find that less enrollment in Medicaid combined with more enrollment in exchanges results in more spending.

Significant Increases in Spending

The American Action Forum and Mike Tanner at the Cato Institute have also estimated that the Supreme Court ruling could increase spending between $50 billion and $100 billion per year. While it is unlikely that CBO will find such significant increases in its assessment, it is worth noting that many find that the CBO underestimates these interactions—most notably their lower-than-expected estimates on the number of employers that will no longer provide health insurance to their employees.

The Middle Ground

More narrow calculations from AEI’s Joseph Antos and The Heritage Foundation fall into this camp. Antos estimates that spending will increase by between $53 billion and $90 billion over 10 years, depending on the number of states that opt not to expand Medicaid. Heritage’s 10-year estimates fall between $34 billion for a 26-state non-expansion and $63 billion for a 50-state non-expansion.

The calculations are simple: Take the number of people in each state that have incomes between 100 and 138 percent of the federal poverty level. Multiply this number by the estimated spending on exchange subsidies and some average per-person federal Medicaid spending. Since it costs the government more to insure people through the exchanges than through Medicaid, spending increases.

Heritage uses an estimate of Medicaid spending of $4,400 taken from CBO in March 2012; AEI uses current average Medicaid spending, which is $3,592. Using the Heritage estimation of individuals in the 100 percent to 138 percent population, along with AEI’s current average Medicaid spending, yields a range of $62 billion for a 26-state opt-out to $112 billion for a complete national opt-out over 10 years.

Heritage uses a calculation based on CBO’s estimated exchange subsidy of $5,380; AEI uses current averages of private insurance, which is $5,429. Actual spending would likely fall somewhere in the area of these projections depending on various assumptions.

Spending Increases Inevitable

The real effect of the Supreme Court ruling is yet to be seen. Once CBO releases its analysis, how the change will be handled will become clearer. However, questions about CBO’s assumptions on premiums, take-up rates, and income level treatments will likely still lack transparency.

Nonetheless, while CBO is likely to handle this issue with a modest approach, analysis indicates that Obamacare will increase government spending while insuring fewer people.