Six Reasons States Should Be Skeptical of Medicaid Expansion Cost Estimates

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Six Reasons States Should Be Skeptical of Medicaid Expansion Cost Estimates As states weigh their options regarding the Obamacare expansion of Medicaid, many have sought out cost estimates to assist them. However, in a new paper, Heritage experts Ed Haislmaier and Drew Gonshorowski caution state lawmakers that state cost estimates rest on key assumptions, some of which may be questionable. There are six reasons state cost estimates could be unreliable: The Medicaid federal match rate could be lower in the future. As it stands now, the federal government is supposed to pay at least 90 percent of the expansion costs. However, the President’s fiscal year 2013 budget has already proposed a change to Medicaid federal match rates beginning in 2017, turning it into a blended rate that would encompass Medicaid, CHIP, and the new expansion population. See the impact on each state >> Reduced state spending on the uninsured is unlikely. Some estimates of state spending with a Medicaid expansion include savings from reduced spending on the uninsured. Haislmaier and Gonshorowski explain, “Under Obamacare, it is even more implausible to assume state savings from cutting uncompensated care payments, since any state payment cuts would have to be imposed in addition to Obamacare’s federal payment cuts.” Accounting for the “woodwork” effect. The “woodwork” effect refers to individuals that were eligible for, but not enrolled in, Medicaid under previous law and enroll in 2014 due to the expansion and new exchanges. This population would still receive the old federal match rate, not the increased rate of the expansion population, thus leading to greater costs for states. Higher administrative costs. Obamacare’s Medicaid expansion will not increase the federal match for administrative costs but will nonetheless increase total administrative costs. Potential savings without an expansion. Any cost projection should include an estimate of the savings a state would incur if those persons between 100 percent and 138 percent of the federal poverty level were enrolled in the federally subsidized exchanges, where the federal government is responsible for all spending. The appropriateness of the tax revenue estimate. The authors explain, “In theory, new federal spending from the Obamacare Medicaid expansion will be income to someone (e.g., various health care providers) who will then pay state taxes on that income.” The assumptions that are made regarding the amount of new state tax revenue from that income determines how much a state will spend or save with a Medicaid expansion. Read the full paper and explore the Medicaid expansion scenarios for each state >>   Medicare Roundup: Setting the Record Straight Medicare Reform Debate: What Really Works in Health Care Competition California to Use Popular TV Shows to Market Obamacare Exchanges Debunking Bill Clinton’s Medicare Claims Fixing Health Care Calls for Evolution, Not Intelligent Design   6 Million AMERICANS WILL HAVE TO PAY THE INDIVIDUAL MANDATE TAX BY 2016 Americans are paying the price for the President's bad health care law. Learn More >>     About The Heritage Foundation Founded in 1973, The Heritage Foundation is a research and educational institute — a think tank — whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. The Heritage Foundation | 214 Massachusetts Ave NE, Washington, DC 20002 | 202.546.4400 | heritage.org