The Cost of Medicaid Expansion Under the ACA

January 19, 2012

HealthcareOn January 10, the 26 states challenging the Affordable Care Act (ACA) filed their brief on the issue of Medicaid expansion. The states argue that the mandatory expansion of Medicaid to include all individuals under age 65 with incomes of less that 133 percent of the federal poverty level (FLP) is a coercive use of Congress’ spending power.

In 2011, 133 percent of FLP for an individual is $14,484 and $29,725 for a family of four.

It is widely believed that the states’ challenge to the Medicaid expansion requirement will not be successful.  The Department of Justice even asked the Supreme Court to deny review of the Medicaid expansion issue because “no court has ever invalidated a federal funding condition on the coercion theory.”

Currently, CMS estimates Medicaid provides health coverage to nearly 60 million Americans.  Assuming the Supreme Court upholds the Medicaid expansion provisions, beginning in 2014, the states will be required to significantly expand their coverage.

A study from the Harvard School of Public Health estimated that the ACA could add between 8.5 million and 22.4 million people to Medicaid by 2019. Similarly, the Congressional Budget Office estimated an increase of 16 million by the end of the decade.

And, there is no question that Medicaid already consumes a huge portion of state budgets.

However, it is important to note that Medicaid is a joint federal-state program. According to a report from the Kaiser Family Foundation, federal and state Medicaid spending was $339 billion in 2009.

Not to minimize the budget impact on the states, but no state pays for more than half of the cost of Medicaid.  And, under the enhanced federal medical assistance percentagesfor Medicaid first authorized under the American Recovery and Reinvestment Act, through September 2011, no state was paying more than 35 percent of their Medicaid costs.

Of course, accepting the enhanced federal funding required states to maintain the eligibility standards they had in effect on July 1, 2008.

Under section 2001(a) of the ACA, the federal government provides 100 percent of the funding for newly eligible individuals from 2014 to 2016, phasing down to 90 percent by 2020.

According to the states’ brief, even with the federal contribution, the states are projecting huge increases in their Medicaid spending:

  • Florida estimates $1 billion annually;
  • Arizona estimates between $7.5 and $11.6 billion over ten years;
  • Indiana estimates between $2.6 to $3.1 billion over ten years;
  • Louisiana estimates approximately $7 billion over ten years; and
  • Texas estimates annual spending of $1 billion in 2014-16, $2.1 billion in 2017-19, and then $4.4 billion annually.

The estimates are so high because, although the ACA funds nearly all of the cost of newly eligible individuals, it does not provide additional funding for those individuals who are currently eligible for Medicaid but will only enroll when they become subject to the individual mandate.

Faced with the nearly inevitable expansion of Medicaid, states will have to find ways to cut their Medicaid costs without limiting eligibility or mandatory services to their citizens.  This will be a difficult challenge.