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Medicaid Expansion’s Coverage Gains Won’t Hurt State Budgets, Even in Recession

With Oklahoma and Missouri voters deciding this summer whether their states will extend Medicaid to a combined 600,000 people by adopting the Affordable Care Act’s (ACA) Medicaid expansion, opponents are again falsely claiming that states can’t afford the expansion, warning that the COVID-19 pandemic and recession will drive enrollment higher. While the recession will, in fact, likely prompt more people to enroll, that will cost states little or nothing at a time when the expansion’s positive impacts on access to care, health outcomes, and financial security are more important than ever.

Millions of people have gained coverage through expansion, driving down uninsured rates in the 35 expansion states (plus Washington, D.C.) compared to non-expansion states. It has cost states little and even saved money in many of them, state and independent analyses consistently find.

That’s because, for starters, states face little upfront cost for the expansion, with the federal government paying the entire cost from 2014 to 2016 before phasing down to 90 percent in each year beginning with 2020. Meanwhile, expansion produces offsetting savings and revenue increases. As more people gain coverage, for instance, hospitals’ uncompensated care costs fall and, in some states, public hospital budgets and payments to other hospitals to help cover those costs fall as well. These savings alone could offset more than one-third of the expansion’s upfront cost across the 15 states that have not yet adopted it, the Urban Institute estimates. States also spend less on programs for people with behavioral health needs, since Medicaid pays for their treatment, and less on corrections as federal Medicaid dollars pay a greater share of the inpatient hospital costs of inmates eligible for or enrolled in Medicaid when care was provided. In states that tax managed care plans serving Medicaid beneficiaries, higher Medicaid enrollment generates additional revenue as well.

In Missouri, a 2019 Washington University study projected that expansion would save the state $39 million in the current fiscal year, and $932 million from 2020 to 2024. This would mirror the experiences of states like Arkansas, Louisiana, Michigan, Montana, and Virginia, which estimate that their expansions have save the states money and will keep doing so with the federal matching rate at 90 percent.

Similarly, a recent New England Journal of Medicine analysis of state budget data concludes that expansion states saw “no significant changes in spending from state revenues associated with Medicaid expansion,” compared to non-expansion states — including for 2017 and 2018, after the federal matching rate fell. Further, there’s “no evidence that Medicaid expansion forced states to cut back on spending on other priorities, such as education, transportation, or public assistance,” the authors find.

While these findings predate COVID-19 and the recession, the same budget dynamics should operate during the recession. With millions losing their jobs or much of their income, expansion enrollment and upfront state costs will indeed rise. But so, too, will the offsetting savings described above. That’s because, without expansion, higher uninsurance due to the recession will increase demand (and therefore state spending) for state-funded programs serving the uninsured, like uncompensated care pools and behavioral health programs.

Some states have dedicated funding sources for their Medicaid expansions, such as higher assessments on health care providers and on managed care plans that serve Medicaid enrollees. Since these revenues are tied to enrollment and utilization, revenue will rise with enrollment, preventing states from experiencing budget gaps that some expansion opponents forecast. Oklahoma’s legislature passed a bill this spring that would have covered the state’s expansion cost in part through a higher assessment on the state’s hospitals tied to utilization, but Governor Kevin Stitt vetoed it.

Meanwhile, the benefits to state residents from expanding Medicaid will only grow as more people need coverage. Already, nearly 27 million people may have lost job-based health coverage due to the recession, Kaiser Family Foundation researchers estimate. Urban Institute researchers project that about 40 percent of people losing job-based coverage in non-expansion states will become uninsured, compared to 23 percent in expansion states, largely because fewer will qualify for Medicaid.

Expansion coverage improves access to care, with especially large gains for Black and Hispanic adults, research finds. It strengthens financial security by, for example, reducing medical debt and preventing evictions. It saves lives, with researchers projecting that it would have prevented 776 premature deaths among older adults in Missouri over four years and 467 in Oklahoma. Expansion also improves hospital finances, particularly for rural hospitals — which could prove especially important today, with hospitals struggling due to both higher costs and less revenue due to the pandemic.

Finally, the federal dollars that come with the expansion provide valuable economic stimulus during a recession. The expansion would likely create or save over 350,000 jobs among states that adopted it while the economy was still recovering from the Great Recession from 2014 to 2016, the Council of Economic Advisers estimated in 2014. With billions in federal dollars at stake, the expansion could provide similar benefits to the remaining non-expansion states during the recession.

All in all, the Medicaid expansion remains a critical lever for states to extend health coverage to hundreds of thousands of their residents, improve health outcomes, advance racial equity, and help spur an economic recovery, all without hurting their budgets.