Roosevelt Institute | Cornell University

Understanding Medicaid Expansion from an Economic Perspective

By Joshua MarkPublished November 3, 2013

null
January 1st, 2014 marks a historical day for the United States health care system. In just over a month, the Patient Protection and Affordable Care Act is set to take effect, and insurance exchanges are set to open across the country. Additionally, twenty-one states plan to expand Medicaid to those currently uninsured with incomes below 138% of the Federal Poverty Level (FPL) with other states currently in deliberation. The federal government is projected to pay for 93% of the increased costs (the costs resulting from increasing coverage from 100% of the FPL to 138% of the FPL) from 2014 until 2022, and 90% of those increases thereafter. Politics of the Affordable Care Act aside, I'd like to look into the opportunity cost of a state's decision to reject federal funding for Medicaid expansion.
By Joshua Mark

January 1st, 2014 marks a historical day for the United States health care system. In just over a month, the Patient Protection and Affordable Care Act is set to take effect, and insurance exchanges are set to open across the country. Additionally, twenty-one states plan to expand Medicaid to those currently uninsured with incomes below 138% of the Federal Poverty Level (FPL) with other states currently in deliberation. The federal government is projected to pay for 93% of the increased costs (the costs resulting from increasing coverage from 100% of the FPL to 138% of the FPL) from 2014 until 2022, and 90% of those increases thereafter. Politics of the Affordable Care Act aside, I'd like to look into the opportunity cost of a state's decision to reject federal funding for Medicaid expansion.

               According to a report on the expansion of Medicaid coverage published by the Robert Wood Johnson Foundation, "expansion would yield state fiscal advantages" in "each state where relatively comprehensive analyses of costs and fiscal gains were conducted." This is due to the high federal subsidies given to states for expansion. In fact, Medicaid expenditures are only expected to increase by 2.8% in states that are expanding (per cbpp.org). Despite this information, fifteen states have chosen not to accept federal funds to expand Medicaid, and fourteen states have yet to announce a decision on the issue.

               Essentially, what the federal government is offering to the states through Medicaid expansion is the opportunity to substantially decrease the number of uninsured at a very low marginal cost. Because the federal government supplies over 90% of the funding required to expand, each individual state's citizens contribute an average of 2% (1/50th of the total expenditures) towards each state's expansion through federal income taxes. Put in other words, a woman from Texas (a state that has elected not to expand Medicaid) still has to pay for the expansion in California through her federal taxes. This comes despite the fact that Texas is among the states with highest rates of uninsured, and would thus stand to gain more than most states from expansion.

               Ultimately, my goal in this blog post was not to discuss the merits of the Affordable Care Act, but rather to shed light on the opportunity forgone by states that have chosen to reject federal funding for Medicaid expansion. Through this rejection, states are implicitly saying that they will pay for other states' expansions through federal taxes, but would rather not receive these benefits at a very low marginal cost. Pros and cons of the policy aside, the Affordable Care Act has been signed into law, providing this unique opportunity for states. State's rejecting federal funds for expansion have signaled that the opportunity cost of receiving funds, and subsequently insuring a substantial amount of those who are currently without insurance, is too high despite the fact that they are paying for the expansion elsewhere.