The Medicaid Expansion Decision: Who Will Be Affected?

by Claire Zellie

In the wake of the Supreme Court’s ruling on the Affordable Care Act, states are now deciding whether to expand their joint federal-state Medicaid programs to cover additional low-income residents. And while states will ultimately make this determination, they aren’t the only players vested in the decision.

Let’s take a look at the landscape. Just days after the ruling on June 28, governors from across the country gathered for their annual governors’ meeting to discuss – among other things – the newly granted option to reject federal dollars to expand Medicaid without a penalty.  Under the expansion, the federal government will pay all costs of the expansion for people earning up to 133% of the federal poverty level from 2014 to 2016, and then 95% in 2017, 94% in 2018, 93% in 2019 and 90% after 2020. Still, many states are wary of taking on this potentially long-term obligation.

A handful of governors have announced that they will opt out of the expansion, though it isn’t clear yet whether governors or state legislators will have the authority to make this decision.  A map (see Media Gallery on the right) created by The Advisory Board Company shows what states have indicated about their Medicaid plans. Interestingly, a number of states that reported that they will opt out (including Texas, Louisiana, Mississippi, South Carolina and Florida) have some of the highest uninsured rates in the country.

Days after the ruling, the National Governors Association wrote a letter to the U.S. Department of Health and Human Services and the National Association of Medicaid Directors wrote to the Centers for Medicare and Medicaid Services (CMS) to clarify some of the details of the ruling and to help guide states with their decision.  In Colorado, analysts at the Colorado Department of Health Policy and Financing are working to determine what the expansion will cost, along with the pros and cons.

Here are some of the groups invested in this decision:

• The individual consumers who would directly benefit from becoming eligible for Medicaid coverage under the expansion. In Colorado, an expected 130,000 low-income residents would be added to the Medicaid rolls through the expansion, according to Dr. Jonathan Gruber’s estimates for the Colorado Health Benefit Exchange.  The Congressional Budget Office is reporting that the ruling on optional expansion may reduce the number of people enrolled in Medicaid by 2022 by three million, since some states are expected to pass up the expansion now that it is voluntary.

• Taxpayers.  Even though the relatively high Medicaid match may be generous for state taxpayers, it will cost the federal government more than $900 billion over eight years.  Due to the mismatch between current federal obligations and tax revenues, the country faces a structural deficit that may be addressed with deep cuts to federal spending.  This causes some taxpayers and policymakers to question the fiscal prudence of a Medicaid expansion at this time. 

• States. According to a report issued in July by the Center on Budget and Policy Priorities (CBPP), the federal government will spend an estimated $931 billion for the nationwide expansion between 2014 and 2022, while states will spend $73 billion (7% of the total estimated cost). This $73 billion in state spending represents an estimated 2.8 percent increase in what states are expected to spend over the same timeframe in absence of the health reform (see graph in the Media Gallery box to the right). Despite this, states are concerned that the federal match may not withstand the financial commitment over time. States are waiting for federal regulatory guidance on how the new state option will be administered and how much flexibility there will be to expand below the 133 FPL threshold. Cindy Mann, Director of the Center for Medicaid and CHIP Services, recently announced at a National Conference for State Legislators meeting that since the expansion is voluntary for states,  they may decide if and when to expand and may also choose to drop the expansion at a later point. Details of this option are yet to be determined.

• Hospitals. Even with insurance, hospital bills can be hefty, and if the uninsured are unable to cover the costs, hospitals may be uncompensated for the care they provide. The financial burden of uncompensated care at hospitals in Colorado amounted to $1.5 billion in 2010, according to the Colorado Hospital Association.  The impact of continuing to care for the uninsured populations is particularly burdensome for facilities that cater to this group.

For now, it is a game of wait-and-see. CHI will monitor the debate in Colorado and continue to provide evidence-based data and analysis on this important health care policy decision.