July 12, 2012

Turning Down Medicaid: Even More Stupid Than It Seems

Basic decency ought to be reason enough for all states, even those with Republican governors, to participate in the Affordable Care Act's expansion of Medicaid. The well-being of literally millions of low-income Americans is at stake. But if the humanitarian aspects of the Medicaid expansion don't appeal to Rick Perry, Rick Scott, and their allies, then economic self-interest really should.

As many of us have been saying, the Medicaid expansion an incredibly good deal, with the federal government picking up nearly the entire cost of the expansion, including 100 percent of the bill for the first three years. According to the Congressional Budget Office, participating in the expansion would require states to increase Medicaid spending by less than 3 percent between 2014 and 2022. (See graph below.) But that figure almost certainly overstates the net cost, as a new briefing from the Center on Budget and Policy Priorities makes clear.

It notes that, based on estimates from the Urban Institute, state and local governments would likely save somewhere between $26 billion and $52 billion because they could spend less money on providing uncompensated care to the uninsured. “There are a number of states that have state-funded programs that will no longer be necessary and virtually every state and localities within those states make payments for uncompensated care to support the uninsured," says John Holohan, who is director of Urban's Health Policy Center. "A lot of that can go away and those savings would offset any new state spending on Medicaid."

Wonkier conservatives who understand health care, along with Republican officials familiar with the challenges of state budgeting, have suggested that the Medicaid expansion imposes a hidden cost. As this argument goes, the expansion will not only attract people who weren't eligible for Medicaid previously. It will also attract people who were eligible but never enrolled. For members of the latter group, the federal government won't be providing the higher matching rate of the expansion. It will be providing the rate it already provides, which varies from 50 to about 85 percent.

But this argument from the right has two flaws. First, experts expect more of the previously eligible to sign up not because of the Medicaid expansion but because of the mandate, which (thanks to the Supreme Court) is still part of the law. The message will go out: Everybody should get insurance. And many people who might not have enrolled before will. Even states that opt out of the expansion will be on the hook for those costs.

Second, and more important, the CBO and Urban Institute estimates already account for that higher enrollment among people who already qualify for the program.

All of which means that the Medicaid expansion is an even better deal than commonly understood. Governors refusing to take part owe their constituents an explanation for why they're turning it down.