A new study by the Urban Institute, The Cost to States of Not Expanding Medicaid indicates that states could leverage a significant amount of funding by expanding health care services through the ACA while expanding insurance coverage by 4 to 5 million people.  The ACA expanded Medicaid coverage to people at 138 percent of poverty.  The expanded coverage is completely covered by the federal government in the first years with the state match going to 10 percent over time. While the ACA mandated this coverage, the 2012 Supreme Court ruling upholding the ACA also made the Medicaid coverage a state option.

The Urban Institute study examined the 19 states that have not yet taken the Medicaid expansion.  The study indicates that in addition to the expanded health insurance coverage, states would leverage between seven and eight dollars for every state dollar they spend.   While increasing health insurance coverage, the study indicates that expanded coverage would add some costs to states but it would also reduce the uncompensated health care costs.

For example, Alabama expansion of Medicaid under the ACA under a high enrollment projection, would cost $1.7 billion for the state but that expense would be lowered by the reduced cost of uncompensated care by $1.3 billion.   That is the state would no longer have to make up the costs of emergency visits and other health care visits by patients without insurance.  The federal cost would increase by $12.7 billion but that total would be partially offset by a reduction in what the government provides in insurance tax credits provided through the health care exchanges.  That would reduce federal expenses by $4.9 billion.  In addition, there would also be a reduction in federal uncompensated care cost of $2.1 billion.  So the total cost for the state of Alabama would be $400 million but that state spending would bring in a total net increase of $5.7 billion in federal funding while also reducing the number of individual who are uninsured. This calculation does not present the full benefit for Alabama or other states.

The Urban Institute analysis indicates that a full economic analysis is not complete unless it evaluates not just the increase in Medicaid costs but also conducts a more detailed evaluation that looks at any revenue raised through fees on premiums and health care payments, increased economic activity through increased health care activity and revenue reduction due to uncompensated care.

The study concluded:

“In the 19 states that have not yet expanded Medicaid eligibility, a small investment in state dollars would yield much larger infusions of federal resources, even taking into account offsetting reductions and federal marketplace subsidies and uncompensated care savings.

Thus far, expansion states have found that state cost increases resulting from higher caseloads are outweighed by state cost savings and revenue growth that result from expansion.  For most states with a relevant analysis, net fiscal gains are expected for the foreseeable future, even after states begin paying 10% of the[Medicaid] expansion costs.”