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President’s Budget Affirms That Washington Will Pay Nearly All the Costs of Expanding Medicaid

As expected, President Obama’s new budget does not include two Medicaid savings proposals that would shift costs to states and which the Administration has previously supported.  This should put to rest health reform opponents’ claims that federal deficit reduction efforts will require states to pay a greater share of the expansion costs than health reform requires now — and their conclusion that states must thus pass up the opportunity to expand the program to millions more uninsured and underinsured low-income individuals and families.

Last year’s Supreme Court decision upholding health reform (the Affordable Care Act, or ACA) gave states the choice of whether to implement the Medicaid expansion.  The expansion is a very good financial deal for states.  The federal government will pay nearly all of the expansion costs — 93 percent over the first nine years (2014-2022), according to Congressional Budget Office estimates from last year.  That’s because the federal government will pick up 100 percent of the cost of the expansion to newly eligible individuals for the first three years and no less than 90 percent of the cost on a permanent basis.

Some state policymakers who oppose their state taking the expansion contend that the federal government will renege on its financial commitment by shifting costs to states and effectively increase how much states will have to pay.  As evidence, they cited two Administration deficit reduction proposals:  to establish a “blended rate” for Medicaid and the Children’s Health Insurance Program, and another to restrict states’ use of provider taxes to finance their Medicaid programs — both of which would raise state Medicaid costs.

The Administration, however, first proposed these measures in 2011, when the Medicaid expansion was required of all states and well before the Supreme Court decision made it an option.  By dropping these proposals from this year’s budget, the Administration is appropriately taking into account how deficit-reduction proposals could deter states from adopting the Medicaid expansion and affirming the federal government’s commitment to financing nearly all expansion costs under health reform.  (The budget includes about $22 billion in Medicaid savings over the next 10 years in the areas of prescription drugs, durable medical equipment and fraud and abuse, but none of those savings result from cost shifts to states.)

As National Economic Council Director Gene Sperling stated in January, states should expand Medicaid “with the understanding that the rug will not be pulled out from underneath them” and that “[w]e are not willing to accept even the Medicaid savings that we had once put on the table … Medicaid savings, Medicaid cuts, for this administration, are not on the table.”