Will States Eventually Opt In To Medicaid Expansion?

With several states’ governors already saying they will opt out of the Medicaid expansion intended to bring health care to millions of currently uninsured Americans, some are calling it the death knell for this portion of the Affordable Care Act. But others say that the federal subsidies will be too tempting, and that it’s just a matter of time until these states decide to take part in the program.

“Over time… most states will find it hard to resist the substantial subsidies for new enrollees,” writes Peter R. Orszag, vice chairman of global banking at Citigroup, in an opinion column for Bloomberg News. “After all, over the past few decades, states have gradually added optional benefits and expanded the number of beneficiaries beyond the bare minimum required by the federal government. And they have done so in response to much smaller subsidies than offered under the 2010 health-care-reform law.”

Orszag points out that, while states will ultimately be expected to cover 10% of the costs for the people covered by the expansion, the current federal subsidy for Medicaid is significantly lower — less than 60% on average. He also cites a Center on Budget and Policy Priorities report which shows that the expansion will only result in around a 3% increase in total Medicaid spending by the states.

The impact on any individual state depends on the current parameters it uses for determining Medicaid eligibility. So while Texas’ Medicaid bill would go up around 5%, states like Maine and Massachusetts, which already cover some of the people the expansion intends to help, could actually see a reduction in their Medicaid costs.

Orszag gives two reasons why he believes that states will eventually choose to invest the money in Medicaid expansion:

First and most important, they help their residents. Both common sense and hard evidence… indicates that access to Medicaid reduces people’s financial strain and improves their self-reported health (while also increasing their use of health-care services).

Second, state governments enjoy reductions in other costs, so that the net impact on their budgets is less than $600 per beneficiary… In 2008, state and local governments paid roughly 20 percent of the hospital costs for uninsured people, according to an Urban Institute study.

He points to the fact that, while fewer than two-thirds of costs covered by Medicaid are not currently mandated by the government, many states choose to provide them — and that’s with a mere 60% average federal subsidy.

“This suggests that states will find it hard to resist a match rate of 90 percent for very long,” writes Orszag.

Big Subsidies Will Push States to Expand Medicaid [Bloomberg]