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Republican Report Inflates State Medicaid Costs Under Health Reform

March 1, 2011 at 4:22 PM

Republican members of Congress released a report today that grossly exaggerates the cost to states of the health reform law's Medicaid expansion.

3-1-11blog.jpgAs I've explained, health reform's Medicaid expansion is a good deal for states. Under the Affordable Care Act, Medicaid and the Children's Health Insurance Program will cover an estimated 18 million more low-income adults and children than they do today, most of whom are now uninsured. The federal government will pay 92 percent of the cost of this expansion through 2021. The cost to states over this period will be $60 billion -- just 2.6 percent more than what they would have spent on Medicaid without health reform. (See graph.)

The Republican report claims that the actual cost will be $118 billion through 2023. But it accomplishes this by cherry-picking worst-case scenarios from various studies that use different time frames and rely on flawed assumptions:

  • For 19 states, the report cites cost figures from an analysis that the Urban Institute conducted for the Kaiser Family Foundation. What it doesn't mention is that the Urban analysis produced two sets of estimates for each state -- one assuming that the Medicaid participation rate would remain at about its current level, and another assuming that it would rise significantly. Most credible analysts use the lower estimate, but the GOP report references only the higher one.

  • The report's cost estimates for Indiana, Mississippi, and Nebraska come from misleading studies conducted by the consulting firm Milliman, Inc. that rely on flawed assumptions. One estimate assumes that literally everyone who becomes eligible for Medicaid under health reform will sign up for it on Day 1 -- something that has never happened in a means-tested public program. Milliman's estimates also generally assume, contrary to states' actual experience with Medicaid expansions, that many people with private insurance will drop it and enroll in Medicaid once they become eligible.

  • The report's cost estimates for several other states suffer from similar flaws and include costs not related to health reform. For example, its Utah estimate comes from a state report that seems to assume enhanced federal funding will run out by 2014, forcing Utah to shoulder a larger portion of the expansion's costs. Its Florida estimate, also from a state report, not only assumes that 100 percent of newly eligible individuals will enroll but also includes the cost of raising Medicaid's payment rates for primary care to Medicare levels after 2014 -- a change the health reform law does not require.

The health reform law, by dramatically shrinking the ranks of the uninsured, will lighten the burden on states of providing health care to their uninsured residents. Recent analysis by the Kaiser Commission on Medicaid and the Uninsured found that the various estimates of state Medicaid costs under health reform don't adequately take these savings into account, which could be quite substantial. In fact, analysts from the Urban Institute have pointed out that the reductions in state costs in caring for the uninsured could more than offset the state costs of expanding Medicaid.