Obamacare and the Medicaid Expansion: How Does Your State Fare?

Drew Gonshorowski / March 05, 2013

The Medicaid expansion is touted by proponents of Obamacare as a “no-brainer.” While it is true that some states may see projected savings, it is erroneous to claim that this experience applies to every state.

Proponents predict that by expanding Medicaid states will be able to reduce payments to health care providers, such as hospitals, for uncompensated care. As a matter of fact, nationally, the opposite is true:

• 40 of 50 states are projected to see increases in costs due to the Medicaid expansion.
• The majority of states see costs exceed savings when the federal match rate is lowered after the first three years. From there, state costs continue to climb, dwarfing any projected savings.
• State savings are concentrated in large states. New York is estimated to see $33 billion in savings, while Massachusetts is estimated to save $6 billion over 10 years. Because of the design of their current programs, these states have a unique opportunity to restructure their programs and transfer significant cost to the federal ledger. (continues below chart)

Of course, even these savings are highly speculative. They assume that uncompensated care costs actually decrease under a Medicaid expansion. Analysis of other states shows that this is not always the case. In fact, in Maine, uncompensated care continued to grow.

Furthermore, the assumed reductions in state supplemental payments to providers for uncompensated care are conditional on state lawmakers enacting explicit payment cuts. Depending on policies adopted by state lawmakers, those reductions could be higher or lower—or even zero—if a state does not enact payment cuts.

As Heritage analyst Ed Haislmaier points out:

Under Obamacare, it is even more implausible to assume states would be able to cut uncompensated care funding. That’s because any state payment cuts would have to be imposed on top of Obamacare’s federal payment cuts. Obamacare cuts federal Medicaid “Disproportionate Share Hospital” (DSH) funding by $18.1 billion and Medicare DSH funding by $22.1 billion over the years 2014–2020.

Therefore, Haislmaier predicts, “governors and state legislators should expect their state’s hospitals and clinics to lobby them for more—not less—state funding to replace cuts in federal DSH payments.”

The Medicaid expansion represents a massive increase in federal and state spending. Although some claim that states could experience savings, it is clear that this is the exception, not the rule. Expanding Medicaid will ultimately cost states in the long run.

See the breakdown for each of the 50 states and the District of Columbia here:

Methodology

A Kaiser Foundation/Urban Institute study from November 2012 projected the cost and coverage effects of the Medicaid expansion over the first nine years (2014–2022). Of particular interest to state lawmakers are the study’s projected changes in state expenditures associated with each state adopting the Medicaid expansion. However, the Kaiser/Urban study reports only the net effects for each state on a cumulative basis.

The Heritage microsimulation model was used to replicate the Kaiser/Urban study—applying the same assumptions and using the same data sources—but reported the results in disaggregated form.

Consistent with the Kaiser/Urban methodology:

• Growth paths are estimated contingent on model-estimated enrollment growth for all 50 states. These growth paths are then benchmarked to the Urban/Kaiser aggregate results.
• We model that adults between 100 percent and 138 percent of the federal poverty level already enrolled in Medicaid as part of an optional population are funded by the enhanced federal match rates for the expansion population. Additionally, states that currently provide limited Medicaid benefits to adults in the same income range also receive the expansion match rates for providing full Medicaid coverage to those adults. As a result of these assumptions, states with already low uninsured rates among the expansion population are projected to be “winners” under the Medicaid expansion.
• We apply to state supplemental payments to providers for uncompensated care the Kaiser/Urban assumptions that state funding accounts for 30 percent of total funding and that state funding is eventually reduced by one-third.

It is important to note that the assumed reductions in state supplemental payments to providers for uncompensated care are not automatic but are conditional on state lawmakers enacting explicit payment cuts.

The estimates also do not reflect the fact that many states could achieve additional savings by reducing Medicaid income eligibility for adults to federally mandated minimum levels, thus making the affected individuals eligible instead for federally subsidized exchange coverage.

Both provider payment cuts and changes to income eligibility require separate policy decisions by state lawmakers. Furthermore, state lawmakers could make changes to either or both policies regardless of whether they elect to implement the Medicaid expansion.

Like the Urban Institute’s Health Insurance Policy Simulation Model, which was used to produce the original study, Heritage’s microsimulation model is comprised of data from the Current Population Survey and Medical Expenditure Panel Survey.