Special Feature: Should States Expand Medicaid Under the ACA?

“Our analysis shows it's in the best economic interests of states to expand Medicaid under the terms of the federal Affordable Care Act.”

— Carter Price

U.S. state map with stethoscope

The Affordable Care Act (ACA) expands health insurance predominantly through three policies:

  1. Medicaid expansion to cover the poorest Americans (those under 138 percent of the Federal Poverty Level, or FPL)
  2. subsidies for low- and medium-income individuals (those between 100 and 400 percent FPL)
  3. an individual mandate to encourage those without insurance to purchase coverage.

Following the ACA's passage in 2010, Florida and 25 other states sued the federal government, claiming that the first of these, Medicaid expansion, was unconstitutional. Two years later, most of the ACA's provisions survived judicial scrutiny, but the Supreme Court ruled that states could “opt out” of Medicaid expansion.

With some governors stating publicly that their states will opt out of expansion, this will be one of 2013's most important policy issues. A recent RAND study explores what might happen to government costs and coverage if states reject Medicaid expansion.

How would Medicaid expansion work, exactly?

The ACA expands Medicaid eligibility to nearly every adult under 138 percent of the FPL. In most states, this would be $15,400 for a single person or $31,800 for a family of four in 2013. The federal government will pay to cover those newly eligible until 2016, at which point the state's share of the cost will gradually grow to ten percent.

What are the possible benefits of Medicaid expansion?

People under 138 percent of the FPL are disproportionately uninsured and therefore have limited access to care, so Medicaid expansion could lead to improvements in health outcomes for those newly eligible. Evidence also suggests that past expansions have yielded a significant decrease in mortality.

States would also benefit from a reduction in uncompensated care costs. Uncompensated care for the uninsured cost $56 billion in 2008, and state and local governments covered 30 percent of this. This means that states are already bearing substantial costs to treat the uninsured, even those not enrolled in a public insurance program.

What are the possible drawbacks?

One potential issue with expansion involves Medicaid's low compensation rates, which often cause providers to turn down Medicaid patients. Expansion will increase the number of individuals seeking care, but health care access may be an issue, due to lower physician participation. That said, an increase in the compensation rate could attract additional providers.

Additionally, states must pay a portion of Medicaid expansion costs starting in 2017. Even small amounts could be difficult for states with fiscal problems.

What scenarios did the study examine?

Using the RAND COMPARE microsimulation, the study analyzed five policy scenarios and their effects on coverage and cost in 2016, the first full year of ACA implementation:

  1. No ACA — Pre-ACA policies continue as if the ACA will not take effect.
  2. Full ACA — The ACA is fully implemented as intended, with Medicaid expansion in every state.
  3. Opt Out — The fourteen states whose governors have publicly said will not participate1 opt out of Medicaid expansion.
    (Given the Supreme Court ruling that allows states to reject Medicaid expansion, this is the most realistic scenario.)
  4. Expand Subsidies — Federal exchange subsidies are extended to individuals under 100 percent of the FPL in states that rejected Medicaid expansion.
    (This could cover low-income adults who would otherwise lack insurance.)
  5. Partial Expansion — States may expand their Medicaid programs to cover people up to 100 percent of the FPL, instead of 138 percent.
    (This could make expansion more appealing to some states, since their Medicaid contributions would be lower in the long run.)

1 Alabama, Georgia, Idaho, Iowa, Louisiana, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, and Wisconsin.

Five Policy Scenarios for Medicaid Expansion
Medicaid expansion by all states Expanded subsidy (< 100% FPL) FPL threshold in expansion states
No ACA No No N/A
Full ACA Yes No 138%
Opt Out No No 138%
Expand Subsidies No Yes 138%
Partial Expansion No No 100%

What effects did the different scenarios have on coverage?

With full ACA implementation, compared to the “No ACA” scenario, an estimated 16.2 million more people would be on Medicaid. An additional 20.1 million more individuals would be covered under an exchange. This would result in an additional 27.4 million people with insurance.

In the “Opt Out” scenario, 3.6 million more people would be uninsured than if all states expanded Medicare under the ACA.

If federal subsidies were expanded to cover low-income adults in states that rejected Medicaid expansion (“Expand Subsidies”), an estimated 1.1 million more people would be newly insured compared to the “Opt Out“ scenario, leaving roughly 27 million people uninsured.

Finally, if states could expand Medicaid only to individuals up to 100 percent of the FPL (“Partial Expansion”), Medicaid would cover more than 54 million people—8.5 million less than in the “Full ACA” scenario. About half of those not eligible for Medicaid would be covered by an exchange, however, 3.6 million more people would be uninsured.

Non-Elderly Coverage (in millions) for Different Scenarios, 2016
Medicaid enrollees (under 65) Covered by an exchange Covered by other insurance2 Uninsured
No ACA 46.7 N/A 178.5 51.7
Full ACA 62.9 20.1 169.6 24.3
Opt Out 58.5 20.6 169.9 27.9
Expand Subsidies 58.4 21.8 169.9 26.8
Partial Expansion 54.4 24.1 170.2 27.9
2 Includes insurance through an employer, Medicare, pre-ACA regulated non-group, and military health coverage.

What about government cost?

Expanding Medicaid would have no significant effect on state budgets before 2017, because the federal government would bear the majority of the cost. In 2016, states would not pay for the newly eligible under Medicaid expansion, but they would be responsible for 10 percent of those costs—roughly $7.8 billion at 2016 spending levels—by 2020. (By way of comparison, states spent about $126 billion on Medicaid in 2010.)

Generally, state Medicaid expansion costs would be less than the uncompensated care costs to states and localities that full ACA implementation would reduce. Therefore, states that expand Medicaid would spend less on the uninsured for the first few years after Medicaid expansion. This could continue past 2020, when the state share of Medicaid costs flattens at 10 percent.

What are the limitations of the study?

State decisions about whether or not to expand are unfolding right now, so researchers had to determine state participation based governors' expressed intentions. If more states opt out of expansion, the decrease in coverage and federal payments to states will be greater and the increase in uncompensated care costs for states will be higher.

States are also currently deciding how to design their health insurance exchanges and other characteristics of the ACA. If states make enrolling in health care easier and improve the ease with which eligible people can enroll in Medicaid, enrollment numbers could be higher. Alternatively, if states put barriers in place to enrollment, effects could be smaller.

For more information, please see:

  • Multimedia

    The Math of State Medicaid Expansion

    Mathematician Carter Price discusses the potential impacts to low-income populations and local economies in states that choose not to expand Medicaid under the Affordable Care Act.