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June 2015 St@teside

Medicaid and the Bottom Line: The Effect of Expansion Decisions on State Finances

In its 50-year program history, Medicaid has been through a multitude of changes, both big and small. A major update occurred with the passage of the Affordable Care Act and subsequent Supreme Court decision: states can choose to expand Medicaid to cover more people than ever before.

Thirty states and the District of Columbia have expanded Medicaid to date, contributing significantly to the reduction in the rate of uninsurance across the country. In states that expanded Medicaid, the rate of uninsurance fell by more than 50 percent (versus around 30 percent in states that did not). Individuals and families covered through Medicaid have better access to care and less medical debt than those who remain uninsured – and nearly equivalent access and better financial protection than enrollees in private coverage.

Not only have states realized coverage gains and increased access to care for their residents, more evidence is showing that the decision to expand Medicaid saves money and even increases in revenue. Previous reports from the State Health Reform Assistance Network showed state budget savings and revenue gains, first in Kentucky and Arkansas, then in six more states, as a result of expanding Medicaid. The third in this series of reports analyzes reductions in uncompensated care costs in expansion states. This report finds substantially greater declines in uncompensated care in states that expanded Medicaid than in those that have not. The report also looks at impending reductions in federal support for Medicaid Disproportionate Share Hospital (DSH) payments and waiver pools made available to support hospital uncompensated care costs prior to the Medicaid expansion authorized and funded under the ACA.

In addition, this month the White House released an updated report entitled “Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid.” The report highlights the improved access, better health, and greater financial security afforded to newly covered individuals. It also discusses the benefits to a state’s overall economy if it chooses to expand Medicaid. Not only would a state receive millions in additional federal funding for their Medicaid programs, but they would experience a subsequent reduction in uncompensated care. The White House estimates that the states that have already expanded Medicaid will reduce uncompensated care costs by a total of $4.4 billion, while the remaining states (22 states cited) would lower their costs by a total of $4.5 billion. States that have not expanded may even be shifting the cost burden of the uninsured residents to their own taxpayers.

Importantly, states have the potential to build their populations’ capacity for economic contribution by improving health and reducing the burden of medical bills through Medicaid expansion. The White House’s Council of Economic Advisors data supports the previous ASPE report from March, which notes that states that have expanded Medicaid have “almost universally shown job growth and positive economic impacts over time.”