Federal help for Medicaid expansion will aid adoption

Guest Column: Peter Orszag
Officials in the Obama administration confidently predict that few, if any, states will opt out of the expansion of Medicaid that health care reform allows. Opponents say most of them will. More

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OP-ED

Federal help for Medicaid expansion will aid adoption

Guest Column: Peter Orszag
Posted 7/16/12

Officials in the Obama administration confidently predict that few, if any, states will opt out of the expansion of Medicaid that health care reform allows. Opponents say most of them will.

My guess is, both sides are right. Many states seem likely to opt out at first, judging by what their governors have said. Over time, however, assuming the law stays in place, most states will find it difficult to resist the substantial subsidies for new enrollees. After all, over the past few decades, states have gradually added optional benefits and expanded the number of beneficiaries beyond the bare minimum required by the federal government. And they have done so in response to much smaller subsidies than offered under the 2010 health care-reform law.

Before the court’s ruling, the Affordable Care Act was projected to reduce the number of uninsured Americans by 30 million to 33 million in 2016 and beyond. More than half of those additional insured – 16 million to 17 million – were expected to gain coverage through the enlargement of Medicaid and the Children’s Health Insurance Program.

During the first three years, 2014 to 2016, the federal government is to fully subsidize this expansion. Then, the subsidy is scheduled to gradually decrease, to 90 percent in 2020 and thereafter. The average federal subsidy for current Medicaid beneficiaries varies from state to state but averages less than 60 percent.

Looking at the decade ahead as a whole, the Congressional Budget Office has projected that the federal government will pay 93 percent of the added Medicaid costs. The 7 percent state share would generate less than a 3 percent increase in total state Medicaid spending over that time, the Center on Budget and Policy Priorities has calculated.

The additional costs depend on current Medicaid-eligibility patterns, which vary from state to state, research from the Kaiser Family Foundation shows. Some states, such as Maine and Massachusetts, are projected to experience a reduction in costs because the federal government will pay a higher matching rate on already-covered beneficiaries than those states. Other states, such as Texas, would face higher costs because their existing coverage is so skimpy. Even in Texas, though, state Medicaid costs would rise by about 5 percent over the coming decade, not a tidal wave.

On average nationwide, the additional state spending would amount to less than $600 per year for each additional insured beneficiary. So what do state governments get for that?

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