• The Medicaid Expansion is a great deal for states

    It’s ironic that Austin and my Viewpoint in JAMA Pediatrics was published at the same time as this piece in Health Affairs. “For States That Opt Out Of Medicaid Expansion: 3.6 Million Fewer Insured And $8.4 Billion Less In Federal Payments“:

    The US Supreme Court’s ruling on the Affordable Care Act in 2012 allowed states to opt out of the health reform law’s Medicaid expansion. Since that ruling, fourteen governors have announced that their states will not expand their Medicaid programs. We used the RAND COMPARE microsimulation to analyze how opting out of Medicaid expansion would affect coverage and spending, and whether alternative policy options—such as partial expansion of Medicaid—could cover as many people at lower costs to states. With fourteen states opting out, we estimate that 3.6 million fewer people would be insured, federal transfer payments to those states could fall by $8.4 billion, and state spending on uncompensated care could increase by $1 billion in 2016, compared to what would be expected if all states participated in the expansion. These effects were only partially mitigated by alternative options we considered. We conclude that in terms of coverage, cost, and federal payments, states would do best to expand Medicaid.

    The paper is already making waves. Austin highlighted Ezra Klein hitting it in Wonkbook this morning. Here’s Sam Baker at The Hill. Unfortunately, I think the paper is gated, but if you can get your hands on it, it’s worth a read. The conclusion:

    The bottom line is that the expansion of Medicaid eligibility is a key provision of the Affordable Care Act. If the fourteen states that have said they will opt out of Medicaid expansion do so, 3.6 million fewer people will have health insurance than would otherwise be the case. This would save the federal government around $8.4 billion a year compared to the full expansion of Medicaid. However, the states that opted out of Medicaid expansion would see a net increase in spending in the short term because they would spend more on uncompensated care. Furthermore, even states that opt out of the expansion will be subject to the reductions in Medicare payments and disproportionate-share hospital payments, as well as various other taxes and fees in the Affordable Care Act. Thus, there may be large net transfers of federal funds out of the states that do not expand Medicaid.

    If some states choose not to expand Medicaid eligibility in spite of the budgetary and economic impact of that decision, the federal government could consider expanding the eligibility for premium and cost-sharing subsidies on the individual exchanges to people with incomes below 100 percent of poverty. However, making people eligible for subsidies would not fully make up for the decline in the coverage rate that would result from failing to expand Medicaid eligibility.

    My thoughts on how this might play out remain unchanged from a year ago. You can still read them here.



    • Interesting finding. Of course, the primary reason states refused the expansion was political. However, I believe the economic argument revolved around the costs to states in later years. What would happen to state spending beyond 2016? Say for the ensuing 10 years to 2026? Would they still be net savers if they had expanded Medicaid?

      These discussions often treat federal money as free, ignoring that it comes from taxes and borrowing. For an individual state, discounting the health effects of Medicaid expansion, one would ask whether the net economic effect would be positive or negative. If federal taxes paid by residents and businesses in the state increased by more than the federal subsidies returning to the state, then the state would be better off not participating. It could be difficult for a state to determine whether this was likely, but of course, some states will be winners and some losers under this expansion.

      A quick and dirty approach might be to estimate the increase in federal taxes from a state to support the federal cost of Medicaid expansion and compare it to the amount the state would expect to receive. That estimate of the state share could be calculated assuming the state retained its current share of total federal tax receipts.

      Since not every state can be a net winner, some states that opted out of the expansion may have lost money on the deal. Others may be better off financially without the expansion, even considering the federal contribution to increased costs.

    • It will be interesting to see how many of those 14 states will stay true to their political ideology.

    • I keep referring people to an article by Jeff Goldsmith in the Health Care Blog about 10 months ago.

      He said that what the southern states really fear is the woodwork effect, where people who are currently eligible for Medicaid but not signed up start enrolling.

      A state does NOT get 90% federal assistance for people who are eligible today but not signed up.

      The impact to these states is many millions of dollars, and these are states which in many cases do not have a state income tax.

      I have very little sympathy for these states, but you can understand why conservative politicians are nervous.

    • Tyler Cowen at marginalrevolution.com raises a variety of interesting points against the ideas advanced by the Health Affairs paper.

      Would be great to have Aaron and Austin respond to that, especially given Tyler’s influence…