Many Republican leaders and other conservatives have argued strongly against Medicaid expansion. The claim is that higher-than-expected expansion will cost their states too much, leaving giant holes in their budgets. However, recent reports show the opposite, and states are finding billions of dollars in savings even with tens of thousands more residents enrolling in expanded Medicaid. It’s time to put to rest the myth that increased enrollment will lead to financial ruin of state budgets.
There is now abundant evidence documenting the positive economic impacts to states that have expanded Medicaid, even when the initial enrollment into the new expansion group was higher than expected.
Savings from Enhanced Match Rates
One of the largest budget savings in states with expanded Medicaid comes from the fact that services provided to the newly covered adults in the expansion group are covered with a much more generous federal funding share than services covered under other traditional Medicaid programs. This higher “match rate” means the federal government will pay 90 cents or more share of each dollar of the cost of the services covered by Medicaid.
Before there was an opportunity to enroll in comprehensive Medicaid through expansion, some individuals could enroll in Medicaid programs that were limited to targeted health services, such as family planning and services for breast and cervical cancer. Those programs receive a traditional federal match, which is about 58 percent in Texas.
When a state chooses to expand Medicaid, some individuals can move from these targeted programs to the more comprehensive Medicaid coverage. When people move from targeted programs into expanded Medicaid, states save money because the Medicaid expansion group earns a much higher federal match rate. Currently the match rate for expansion programs is 100 percent, meaning the federal government is paying the entire tab. In between 2017 and 2020, this rate will begin to phase down to a 90 percent federal match rate (which is still significantly higher than the traditional rate).
According to a report recently released by Ohio Medicaid, their Medicaid program was under budget by nearly $2 billion for SFY 2015. The report acknowledges that enrollment into the Medicaid expansion program exceeded estimates by more than 150,000 individuals, and the cost of the expansion program was $1.4 billion more than originally projected as a result. But it also points out that Medicaid enrollment in traditional programs was more than 190,000 lower than expected, which more than offset the cost of the additional enrollment.
Also, in SFY 2015, Kentucky saved an estimated $33.3 million and Arkansas had an estimated $55.4 million in savings, just from accessing the enhanced federal match rate for the Medicaid expansion group.
Savings from Replacement of General Funds with Medicaid Funds
In addition to savings from an enhanced federal match, expansion states have also found savings by replacing state dollars (general revenue funds) with federal Medicaid dollars. As an example, if a state expands Medicaid, most hospital inpatient stays of incarcerated adults could be billed to Medicaid. Also, many states have allocated state and local funds to support mental health and substance abuse treatment. With expansion, eligible adults could instead have their mental health services covered under Medicaid. Just in the first two years, expansion states have seen millions in savings from replacing their general revenue funds with Medicaid dollars, freeing up general revenue to meet other important needs.
Reduction in Uncompensated Care
Expansion of Medicaid helps reduce the number of uninsured, which, in turn, can decrease costs to hospitals and providers when they provide services to patients who are not insured and can’t afford to pay (known as uncompensated care). Currently in Texas, some of the cost of uncompensated care is offset through federal and local funds. With Medicaid expansion, people can access comprehensive health care coverage through Medicaid and providers will see a reduction in the amount of uncompensated care they must provide. For example, Kentucky hospitals saw a reduction of $1.5 billion in uncompensated care cost in the first three quarters of 2014.
In addition to these cost savings, Medicaid expansion can also stimulate the state economy through job growth and new revenue streams. In Kentucky, Medicaid expansion has contributed an estimated 12,000 new jobs and $1.16 billion in new direct Medicaid revenues to health care providers. Texas could see as much as $6 billion in annual new direct health care investments with Medicaid expansion.
In summary, the talking point that higher-than-expected enrollment into new Medicaid programs means trouble for state budgets misses the big picture, and is not supported by the data from expansion states. Overwhelmingly, expansion states have seen large positive net impacts to their budgets and their economies after expanding Medicaid to adults. It’s time for Texas to follow their lead and close the coverage gap affecting 1 million Texans who cannot access affordable health care.