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Higher Medicaid Expansion Enrollment Means Not Only Greater Coverage, But Also State Savings

About half the states that have expanded Medicaid as part of health reform have enrolled more people than they expected, generating bigger health coverage gains but also prompting fears among some policymakers that states will thus bear higher-than-expected future costs.  In reality, many states are enjoying net budget savings — due to how the expansion works — and such savings should continue into the future.

Kentucky, for example, has saved $109 million and Washington has saved $465 million through June, according to a recent report from the State Health Reform Assistance Network.  By the end of 2015, Colorado expects its expansion to save $308 million while Oregon projects $275 million in savings.  Medicaid expansion has had similar impacts in other states, as we’ve shown.

These savings come in two main forms, both due to strong enrollment.  First, by expanding Medicaid, states have been able to move people who received health services through targeted Medicaid programs, such as family planning services and care for certain women with breast and cervical cancers, at the state’s regular matching rate of sharing the costs with the federal government into the new eligibility group for which the federal government is now paying the entire cost.

Second, as more people have gained health coverage, demand for health services for uninsured low-income people that states fund entirely, such as funding for hospitals to offset their uncompensated care costs and behavioral health services, has fallen.  States that experience greater-than-expected expansion enrollment may therefore experience a larger-than-projected drop in demand for these services.  That in turn could mean even greater state savings in these programs.

Moreover, state savings are projected to continue to outweigh costs.  Starting in 2017, states must begin paying a modest portion of the expansion’s cost (but no more than 10 percent over the long run).  Yet recent studies from some expansion states, including those experiencing high enrollment, find that savings from the Medicaid expansion will continue to outstrip state expansion costs into the next decade.

Medicaid expansion critics who express alarm about states’ future costs are offering an incomplete picture; the expansion is producing savings in many states now, and it will do so for the years to come.

These state savings are coming as the Medicaid expansion is driving many of the gains in health coverage across the country.  The share of Americans without health insurance has dropped markedly since health reform’s major coverage provisions took effect last year — and these gains have been greatest in states that have expanded Medicaid, according to an Urban Institute survey