Expanding Medicaid: One of the Best Things Lawmakers Can Do for State Budgets
After expanding Medicaid, eight states (Arkansas, Colorado, Kentucky, Michigan, New Mexico, Oregon, Washington, and West Virginia) are expected to achieve budgetary savings and revenue gains exceeding $1.8 billion by the end of 2015, according to a report published yesterday. And that’s even though these states are fairly early into their Medicaid expansion. The study, commissioned by the Robert Wood Johnson Foundation and prepared by researchers from Manatt Health Solutions, also shows that some states—Arkansas and Kentucky, for example—have state budgetary savings and revenue gains that are projected to completely offset any expense that the state’s Medicaid expansion generates through 2021.
States get budget savings from enhanced federal matching Medicaid expansion funds
Prior to the Affordable Care Act’s Medicaid expansion, many states used special Medicaid programs to cover high-needs patients who weren’t eligible for the state’s standard Medicaid program. For individuals in those programs, states received their standard federal Medicaid reimbursement rate—the federal government paid a state from between 50 to 70 percent of its costs.
Under Medicaid expansion, however, states receive a higher rate of federal matching funds. As a result, states can move individuals from standard Medicaid programs into the ACA’s Medicaid expansion and get a higher matching reimbursement rate from the federal government. For the expansion population, the federal government will pay 100 percent of costs through 2016, which gradually decreases to 90 percent in 2020 (where the rate levels off).
Moving people from standard Medicaid programs into Medicaid expansion can save states millions of dollars.
States also get savings from programs that subsidize health care for the uninsured
Expanding Medicaid results in a decline in a state’s rate of uninsurance, which equates to a reduction in that state’s spending on care for the uninsured. This includes money for state mental health and substance abuse treatment programs as well as uncompensated care funds for hospitals and other safety net providers.
According to the report, another notable area of savings was in corrections budgets. States spend billions to provide health care to incarcerated prisoners. However, when prisoners need acute care treatment that cannot be provided within a corrections facility, states can now bill Medicaid for that care. Prior to expansion, the state was required to pay for that care. Michigan saved $19.2 million in 2014 and 2015 and Kentucky saved $16.4 million on health care for prisoners.
Medicaid expansion leads to increased revenue from existing taxes on hospitals and insurers for states
States levy taxes on hospitals and health insurers. As the number of people with health insurance increases when a state expands Medicaid, hospital and insurer revenues increase. And state tax revenues rise accordingly. Four states in the report identified revenue gains due to expansion, totaling between $26 million (Michigan) and $60 million (New Mexico) through 2015.
Many of the states in the report have not yet completed the analysis of how their budget is affected by Medicaid expansion; more savings and gains, as well as costs, may be identified as states continue to assess the impact of expansion. However, the early evidence is strong: Medicaid expansion is good not just for the health of a state’s residents, but its budgets, too.