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Why Health Reform Is a Good Deal for the States

Critics who claim the new health reform law’s Medicaid expansion will place an unaffordable burden on states ignore the fact that the federal government will cover virtually all of the cost.  They also ignore the ways in which the law will save states money.


Under the new law, Medicaid and the Children’s Health Insurance Program (CHIP) will cover an estimated 16 million more low-income adults and children, most of whom are now uninsured.

  • The federal government will pay 96 percent of the cost of this expansion, according to the Congressional Budget Office (see graph).
  • The cost for states, $20 billion for the 2014-2019 period, will increase their overall Medicaid spending by just 1.25 percent.

And by dramatically shrinking the ranks of the uninsured — health reform as a whole will cut the number of uninsured by 32 million — the law will lighten the burden on states of providing health care to their uninsured residents.

State and local governments spend more than $10 billion a year to care for the uninsured in hospitals and around $15 billion a year to provide the uninsured with mental health services.  Those costs will drop considerably under health reform, offsetting part of the increase in state Medicaid spending.  (Massachusetts’ spending on uncompensated care plummeted by 38 percent in its first full year under health reform.)

Some states that have complained about the cost of the Medicaid expansion have ignored these savings.  They’ve also exaggerated the increase in Medicaid enrollment under health reform.

For example, a study that Indiana commissioned estimated that Medicaid enrollment would jump by 495,000 — even though Census data show the state has only 264,000 uninsured people who could newly qualify for Medicaid under the new law.

In short, the Medicaid expansion will enable states to cover millions of low-income residents who haven’t been able to afford coverage — and the federal government will pick up 96 percent of the tab.  That’s a deal states should applaud.