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April 4, 2018

Evidence Shows Medicaid Expansion Is Not a Budget Buster

While we wait for lawmakers to return to Richmond to take up the state budget and consider expanding Medicaid to hundreds of thousands of Virginians, the Brookings Institution has dug into a number of arguments opponents make about expansion – projected enrollments are wrong, costs are bigger than expected, it’s a disaster for state budgets – and asked the question: Do states regret expanding Medicaid? Turns out the answer is largely no, and that expansion has been good for states in a number of important ways.

Citing numerous analyses and reports, Brookings Senior Fellow Mark Hall gives the run down of how almost all of the purported threats from expansion share a few common threads that can be easily debunked when looking at the experiences of other states that have benefited from Medicaid expansion for years. Drawing on this analysis and others, here’s our short version:

Medicaid expansion has strengthened state budgets, and lawmakers in other states continue to support the program. Opponents of Medicaid expansion claim that it has been a disaster for state budgets, but here’s what’s really happening:

  • Every expansion state that has analyzed the comprehensive effects of expansion has seen improvements to their state budget balance as a result of expansion, even after accounting for higher enrollment.
  • Expansion in Arkansas, California, Colorado, the District of Columbia, Indiana, Kentucky, Louisiana, Michigan, Montana, New Mexico, Ohio, Oregon, Maryland, Pennsylvania, Washington state, and West Virginia has led to documented state savings and revenue gains.
  • Virginia can expect to see net savings from Medicaid expansion because we already offer services that would now be paid for with more federal dollars under expansion’s more generous match rate.
  • Across the political spectrum, states that expanded do not regret their decisions. Republican governors in Arkansas, Arizona, Michigan, Nevada, and Ohio, along with Republican legislative bodies in Arkansas, North Dakota, and New Hampshire have continued to endorse Medicaid expansion and oppose repeal efforts.

Cost estimates of Medicaid expansion have been largely accurate, and improvements to care contracts could reduce some spending. If lawmakers are hesitating out of fear of uncertainty and cost, they need to look at the experiences of other expansion states. Here’s why:

  • After learning from the experience of expansion states over the past several years, cost estimates and projections (which were mostly accurate before) are likely to be even more accurate now.
  • Virginia can learn from the mistakes of early expansion states when devising Medicaid managed care contracts. The federal government projects that improvements to these contracts could lead to a 20 percent reduction in spending from 2015 levels for new expansion recipients.
  • Expert analysis shows that state costs will only increase modestly as the federal government moves to paying a 90 percent share of Medicaid expansion costs.
  • Not a single state that has a legislative trigger to repeal expansion if projected costs are wrong has felt the need to use the option.

Medicaid programs in other states have not been overwhelmed by enrollment as some suggest. Here are the facts:

  • While some states did see larger enrollment than initially anticipated, this did not lead to major new costs since the federal government paid for almost all of the costs.
  • Expansion states like Indiana, North Dakota and Ohio have seen enrollment trends remain under or at expected projections. States’ projections for Medicaid expansion costs have largely been accurate.  

While some opponents of Medicaid expansion point to federal uncertainty as a reason to not expand, a closer look at the debate suggests that it would be more risky to not expand Medicaid. It would take legislation to undo the Affordable Care Act (ACA), but that is unlikely to happen.

  • Attempts to disband the ACA failed numerous times last year. Republican leadership has indicated they are not interested in bringing up the matter again this year. With this certainty, we should bring our federal tax dollars back to the state and shore up the state’s reserves to protect our bond rating – which is at risk.
  • Most versions of legislation to repeal the ACA would have penalized non-expansion states like Virginia by locking in our current low levels of Medicaid funding with some form of a block grant, so doing nothing is a riskier move for Virginia than expanding now.

Extensive evidence shows that Medicaid expansion costs are largely predictable and modest. Assertions that they are out of control or significantly above projections have not stood up to objective analysis. In the long run, Medicaid expansion may eventually have some net costs for Virginia, but these costs are likely to be negligible when compared to the benefits – expanded access to health coverage, and an increase in jobs and tax revenue.

Health Care

Chad Stewart

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