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More Evidence that Medicaid Expansion Hasn’t Hurt State Budgets

Medicaid expansion under the Affordable Care Act (ACA) did not lead to significant increases in state spending on Medicaid even as millions of low-income people gained health coverage, a new study in Health Affairs found. The findings refute Medicaid expansion critics’ continued claims that states cannot afford the expansion, and affirm that the real threat to state budgets are Republicans’ continued attempts to repeal the ACA.

The study examined data compiled by the National Association of State Budget Officers (NASBO) from 2010-2015 in all 50 states (the District of Columbia was not included) and looked at changes in federal and state spending on Medicaid, along with spending in other budget areas, such as education and transportation.

Medicaid expansion was associated with a statistically significant increase in both total spending and federal spending on Medicaid after expansion took effect in 2014, the study found. The federal investment under the ACA has enabled more than 11 million people to gain Medicaid coverage, which across the country, and in expansion states in particular, has led to the lowest uninsured rate on record.

Importantly, the study found expansion was not associated with a statistically significant increase in state spending on Medicaid. This isn’t surprising because expansion is an extremely good deal for states: the federal government paid the entire cost of expansion from 2014-2016, and will pay no less than 90 percent of the cost going forward.

The authors note that their study looked only at spending within state Medicaid programs, and did not examine expansion’s broader benefits for state budgets. Other research has found that expansion has produced savings in Arkansas, Kentucky, Louisiana, Michigan, and elsewhere. That’s because as more low-income people have gained Medicaid coverage, demand for state-funded health programs that serve the same population, such as behavioral health programs and payments to hospitals to cover uncompensated care, has dropped, providing net savings. Moreover, some expansion states project expansion will continue to produce net savings through the end of the decade, even as states pick up a greater share of expansion costs.

Republicans’ continuing attempts to repeal the ACA is the real threat to state budgets. The House Republicans’ bill, the American Health Care Act (AHCA), would cut federal Medicaid spending by $839 billion over ten years, by effectively ending the Medicaid expansion and converting the entire program to a per capita cap or block grant. States would be forced to make up this sizable cost-shift by raising revenues or cutting other parts of their budgets, or, as is more likely, cutting Medicaid eligibility, benefits, and provider payments.

In fact, a number of states issued projections of the cost-shift they’d face under the AHCA, in which they concluded the cuts would be so large that they would be unable to afford their Medicaid expansion and would have to make other substantial cuts to the rest of their Medicaid program as well.