The benefits of expanding Medicaid

Since the Affordable Care Act’s (ACA) Medicaid expansion provision was implemented, 30 states and the District of Columbia have expanded Medicaid benefitting over 10 million people. 20 states, concentrated in the West and South, have refused to expand Medicaid.

Politics has been a major factor in this debate. Medicaid expansion passed as part of ACA to increase access to healthcare for those who could not afford one of the new plans on a state or federal healthcare exchange. ACA opponents think expanding Medicaid is the same as creating a state healthcare exchange (which few non-expansion states have done) or endorsing the whole law. But this view is beginning to change as governors see the real-world benefits of expansion. Two Republicans running for president, Chris Christie and John Kasich, expanded Medicaid in their home states of New Jersey and Ohio, respectively. Expect more Republicans governors and legislators to follow-suit next year.

{mosads}Most non-expansion states are required by law to pass balanced budgets. Expansion opponents in those states claim it would simply cost too much. When expansion was first implemented, cost was a legitimate concern and there were no success stories to point to or hard evidence to disprove the theory that expansion would explode state budgets. But now that dozens of states have expanded Medicaid the results are clear: Medicaid expansion is a huge budget saver for states. 

A recent study by Manatt Health measured the effects of Medicaid expansion in 8 states over the first 1.5 years of implementation and the results are encouraging. Since expansion, each state has seen significant budget savings and revenue gains, totaling $1.8 billion by the end of this year. As a result, these states should expect to decrease spending on programs benefitting the uninsured population, realize savings as a result of lower uncompensated care costs, and see revenue increases as a result of taxes on insurers and providers that provide more care to more people. 

Medicaid expansion states have benefited substantially from a decrease in uncompensated care costs. A combination of insurance policyholders, hospitals and the government pay billions in uncompensated care costs each year for those without medical insurance who go to a hospital to receive treatment. The assistant secretary for Planning and Evaluation projected a 26 percent drop in uncompensated care costs in expansion states in 2014. Some hospitals have already reported lower uncompensated care costs.

Arkansas saw a 56.4 percent drop in uncompensated care losses during the first six months of its version of Medicaid expansion. In the first six months of 2014, uncompensated care cases in Iowa went down 18.5 percent. Uncompensated care costs in Colorado decreased by 36 percent comparing costs in Q1 2014 to Q1 2013. And in New Jersey, uncompensated care cases have decreased by 43 percent. As a result, hospitals and other healthcare providers will generate tens of millions in savings that will benefit state budgets.

California estimates that it will save approximately $1.4 billion in general funds related to healthcare programs over FY 2014-2015. Next year, New Jersey will cut $74 million in old uncompensated care obligations and put that towards Medicaid physician reimbursement and graduate medical education. Other states anticipate similar savings and are considering where best to reallocate those funds for next year.

More Medicaid coverage means more revenue for insurers and healthcare providers which means more tax revenue for state governments. In 2015, tax revenue from insurance companies increased by $26 million in Michigan, $29.7 million in Arkansas, $33.9 million in Washington, and $30 million in New Mexico. 

In 2016, when state legislatures are back in session and lawmakers consider where to direct limited funds for healthcare, the question won’t be: How can states afford to expand Medicaid, rather, how can they afford not to?

Benjamin is a partner at DDC Public Affairs where he leads the firm’s health care practice. For more than 20 years, he has designed award-winning public affairs and grassroots advocacy campaigns for numerous Fortune 500 companies and leading trade associations.