Montana’s Fiscal Gains From Medicaid Expansion Are a Model for Wyoming

Most states that have not expanded Medicaid are in the South, but one state in the West ― Wyoming ― is among the exceptions. The experience of other states, including its neighbor Montana, shows that if Wyoming expands Medicaid, it will dramatically increase coverage while providing the state with fiscal savings for many years to come.

Numerous studies have documented the benefits of Medicaid expansion to people who gain coverage. These include increased access to care, improvements in cancer diagnosis rates, and reductions in deaths — overall, from conditions such as cardiovascular disease, and among infants.^[1] Medicaid expansion also improves financial security. It lowers medical debt, the most common form of debt, held by 100 million people in the U.S.^[2] It also reduces catastrophic medical costs,^[3] evictions, and bankruptcies while improving credit scores.^[4]

But studies show that Medicaid expansion also has fiscal benefits, making it a great deal for state governments and taxpayers and often producing net fiscal gains. These studies do not include the American Rescue Plan’s federal match rate incentive, which alone would provide enough federal funding to fully offset non-federal expansion costs for between 3.1 and 6.5 years among the 12 non-expansion states, depending on the state.^[5]

Montana’s experience highlights the fiscal benefits that Wyoming could expect if it expands Medicaid. Like Wyoming, Montana is a Western state that is less densely populated than most other states. The two states have similar per-capita rates of total state expenditures and tax collections and share demographic similarities. In addition, Montana’s expansion, which was implemented on January 1, 2016, was long enough ago to provide ample post-expansion data and to allow comprehensive studies of fiscal impacts, unlike some Western states that expanded more recently (for example, Idaho and Utah).

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Rapid Drop in Uninsured With No Decline in Employer Coverage

When states expand Medicaid, they experience steep reductions in the number of uninsured people, which drives many of the fiscal benefits to states. After Montana implemented its expansion on January 1, 2016, the uninsured rate fell steeply while Medicaid enrollment increased roughly 50 percent in only two years.^[6] This result is unsurprising, as numerous studies have demonstrated large coverage gains for uninsured people in states that expanded Medicaid.^[7]

A simple comparison of uninsured rates in Wyoming and Montana before and after Montana’s expansion illustrates the impact of Montana’s expansion on the uninsured rate. During the first year of the expansion, the uninsured rate among non-elderly adults dropped by one-quarter, from 16 percent in 2015 to 12 percent in 2016.^[8] In contrast, Wyoming’s uninsured rate rose from 14 to 15 percent during that period. By 2019, Montana’s uninsured rate was still 12 percent while Wyoming’s had further increased to 17 percent. (See Figure 1.)

The change between the two states’ uninsured rates is revealing. Prior to 2016, Montana’s uninsured rate was consistently higher than Wyoming, with the gap between the rates averaging about 4 percentage points from 2010 to 2015. Following expansion (2016 to 2019), the gap in uninsured rates still averaged about 4 percentage points, but the relationship was reversed: Montana’s uninsured rate was consistently lower than Wyoming’s. A recent report by the Urban Institute estimated that if Wyoming were to expand Medicaid, the number of uninsured people would decline by one-quarter in 2023, equivalent to 20,000 additional people with coverage.^[9] That translates to a 3.8 percentage point decline in the uninsured rate in Wyoming, putting it more in line with Montana’s uninsured rate.

While some critics have warned that Medicaid expansion causes significant numbers of people to shift from employer-based coverage to Medicaid, empirical research has demonstrated small or no impacts on employer coverage.^[10] The lack of any obvious decline in employer coverage is evident in a comparison of trends in Wyoming and Montana. (See Figure 2.) The rate of employer coverage for non-elderly adults showed no signs of decline in Montana, averaging 55 percent in the three years prior to expansion and 56 percent in the three years after expansion. In Wyoming during the same period, employer coverage rates also do not trend significantly in either direction, averaging 64 percent from 2013 to 2015 (prior to Montana’s expansion) and 63 percent from 2016 to 2018 (after Montana’s expansion).

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Net Budgetary Savings Would Last Many Years, If Not Indefinitely

The federal government pays 90 percent of the cost of Medicaid for expansion enrollees (leaving 10 percent for the states). That is far larger than the 60 percent federal contribution for traditional Medicaid enrollment groups in the median state and the 50 percent paid for Wyoming enrollees.^[11] Due to offsetting savings and revenue increases, the net cost to states is even smaller than this modest 10 percent share. Studies of over a dozen states have consistently demonstrated substantial fiscal savings when states expand Medicaid, and most states with comprehensive analyses found that expansion would lead to net fiscal gains ― savings and revenue increases that more than fully offset the state share of the costs of coverage.^[12] Moreover, these studies were conducted before the Rescue Plan’s large financial incentive for states that expand Medicaid.

A comparison of Medicaid spending trends in Montana and Wyoming do not show an obvious impact of Montana’s expansion on state Medicaid spending.^[13] In Montana, Medicaid expansion precipitated a dramatic increase in federal Medicaid spending with little change in the growth rate of state Medicaid spending. Annual growth in state Medicaid spending from 2015 (just prior to Montana’s expansion) to 2019 averaged 3.2 percent, lower than the 4.2 percent annual average in the three years leading up to expansion. (See Figure 3.)^[14] Meanwhile, federal Medicaid spending increased by an annual average of 18.3 percent from 2015 to 2019, up from 3.6 percent during the three years prior to expansion. By 2019, state Medicaid spending was 13 percent higher than it was in 2015, prior to expansion, while federal Medicaid spending had risen 87 percent. In contrast to the dramatic shift in federal Medicaid spending in Montana, the growth rates in Wyoming’s state and federal portions of Medicaid spending were similar to one another over this period.

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Savings Within Medicaid

Across studies of ten states, Medicaid expansion resulted in savings in other parts of the Medicaid program that are enough to finance 7 to 85 percent (50 percent on average) of state expansion costs.^[15]

When states expand Medicaid, many enrollees who would otherwise be eligible through existing Medicaid groups ― some of which offer only limited or temporary coverage ― are instead classified as expansion group enrollees. For example, women who enroll in the expansion group and become pregnant may still be considered part of the expansion group instead of being classified as part of the pregnancy group.^[16] Other eligibility pathways in which some enrollees could be categorized as part of the expansion group include those related to disability, breast and cervical cancer treatment, family planning, and limited coverage programs for low-income adults under waivers.

This creates offsetting savings in those existing Medicaid groups and produces overall net savings within Medicaid, because the federal government finances 90 percent of the cost of expansion group coverage but typically far less (60 percent in the median state, and 50 percent in Wyoming) for most other eligibility groups.

Studies of Montana’s expansion estimate that it recouped enough savings within Medicaid to cover between 23 and 68 percent of the state cost of expansion in 2019.^[17] The low estimate comes from a study that tallies categories of cost savings. This study was able to include separate estimates of savings within Medicaid because a portion of enrollees who would have been categorized among those with limited coverage under a waiver, pregnant women, those in the “medically needy” category, and those with breast and cervical cancer were instead categorized as part of the Medicaid expansion group. As such, some expenditures under these existing categories were subject to the 90 percent expansion group federal match rate instead of the lower traditional match rate.^[18]

The study that produced the high estimate of offsetting savings within Medicaid in Montana (68 percent) used a common econometric technique that is likely to capture cost savings more comprehensively but does not provide separate estimates of each category.^[19] This methodological approach is more likely to capture complex spillover impacts of Medicaid expansion than the approach used in the low estimate, but is unable to identify which parts of Medicaid produce the savings.^[20]

Wyoming would save roughly 50 percent more than Montana for each enrollee that shifts from an existing group to the expansion group, because Wyoming receives the lowest allowable federal matching rate of 50 percent for most Medicaid enrollment groups, far lower than Montana’s 64 percent federal match rate. For each enrollee whose federal match rate is 90 percent (due to being part of the expansion group) instead of Wyoming’s usual 50 percent federal match, Wyoming would save 40 cents on the dollar (90 percent minus 50 percent), far more than Montana’s 26 cents on the dollar (90 percent match minus 64 percent match).

Savings in Other Programs

In addition to savings within Medicaid, states save in other programs when they expand Medicaid, especially state-funded programs that serve uninsured populations who under Medicaid expansion receive increased support through Medicaid.^[21] These programs include treatment of mental health conditions and substance use disorders, health care for people who are incarcerated, and other programs for vulnerable populations.^[22] Estimates of savings outside of Medicaid vary among studies in terms of which programs are included, complicating comparisons. Looking at estimates that include just two common categories of savings ― mental health and substance use, and corrections ― estimates for Arkansas are at the lower end of savings (6 percent of state expansion costs) while estimates for Michigan are at the upper end (41 percent of state expansion costs).^[23]

In Montana, savings outside the Medicaid program have been estimated to equal 17 percent of expansion costs.^[24] These savings accrue via Montana’s mental health and services program, substance use disorder treatment, and reimbursement for inmate hospitalizations. Adding the 17 percent savings from programs outside of Medicaid to the range of savings estimated within Medicaid discussed above, total estimated cost savings for Montana range from 40 to 85 percent of the state’s share of expansion costs, depending on whether we use the lower or upper bound estimate of Montana’s within-Medicaid savings.

Revenue Increases

When more people are covered by insurance due to Medicaid expansion, states gain additional revenue through provider taxes and fees, which are in place in all states except for Alaska and are commonly used by states to partly finance their Medicaid costs.^[25] Wyoming has maintained a hospital provider tax since 2017 and a nursing facility provider tax since 2011.^[26]

Some states newly implemented fees or changed existing fees to pay for some or all of Medicaid expansion, while other states gained additional revenue through existing taxes or fees without policy changes. Likewise, some states dedicate the additional revenues to Medicaid expansion while other states use it to finance other spending. State estimates of these revenue increases range from a premium tax that is enough to cover 13 percent of state expansion costs in Arkansas to a provider fee in Virginia that covers 100 percent of the state cost of expansion.^[27] In Montana, one study estimated that Medicaid expansion, by increasing health care consumption, generated additional revenues through its hospital utilization fee that were enough to cover 18 percent of expansion costs.^[28]

Many studies have also estimated large indirect impacts on state revenues, as the influx of federal funds following expansion can potentially spur increased economic activity and additional sales and other tax revenues. These impacts are uncertain and depend on future economic conditions and state tax regimes.

Uncompensated Care Costs

States that expand Medicaid see substantial reductions in uncompensated care costs ― the cost of providing health care that goes unpaid by patients or insurers. Uncompensated care costs mostly consist of charity care and debt expenses for uninsured people, and a large body of research shows that these costs fall precipitously for states that expand.^[29] Between 2013 and 2015, when most states expanded Medicaid, hospitals’ uncompensated care costs fell by $8.6 billion (23 percent), with states that expanded experiencing declines several times larger than those that did not.^[30] When uncompensated care costs drop, savings accrue to a combination of the federal government, state and local governments, and health care providers. How these savings are ultimately distributed varies considerably among states depending on how their uncompensated care costs are financed. But a recent study estimated that if the 12 remaining non-expansion states expanded, the reduction in uncompensated care costs alone would offset more than 60 percent of new state Medicaid spending.^[31]

The impact of Medicaid expansion on uncompensated care costs, as well as evidence that expansion improves the financial performance of hospitals and other providers,^[32] could be part of the reason the Wyoming Hospital Association and Wyoming Medical Society support expansion.^[33] The Montana Hospital Association has also long championed Medicaid expansion.^[34]

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A comparison between Montana and Wyoming illustrates the dramatic impact of Medicaid expansion on uncompensated care costs and serves as a useful guide for Wyoming. (See Figure 4.) Uncompensated care in Montana dropped from $143 million in 2015, prior to expansion, to $89 million in 2019. This equates to a 44 percent decline in uncompensated care costs as a share of hospital operating expenses. In contrast, Wyoming’s uncompensated care costs increased from $96 million to $106 million over the same period. By 2019, Wyoming’s uncompensated care costs were almost three times Montana’s as a share of hospital operating expenses.^[35]

Rescue Plan Federal Match Rate Incentive

While it is difficult to combine cost savings and revenue increases from separate studies, the estimates cited above indicate that Montana offsets at least the large majority, if not over 100 percent, of its expansion costs through cost savings and revenue increases. That does not factor in any indirect state revenue impacts from increases in economic activity or state savings resulting from uncompensated care reductions. And crucially, it does not include the American Rescue Plan’s large financial incentive for states that expand Medicaid.

That incentive would provide Wyoming with a two-year, 5 percentage point increase in the share of Medicaid costs that the federal government pays for non-expansion enrollees, who account for most of a state’s enrollees and costs. According to separate estimates from the Kaiser Family Foundation and Manatt Health, the incentive would provide Wyoming with $70 to $81 million in additional federal dollars during the first two years of expansion, enough to cover 3.8 years of the state share of Medicaid expansion costs even before consideration of any of the cost savings and revenue increases discussed above.^[36]

If we assume that Wyoming experiences the same lower bound estimate of offsetting savings and additional revenues as a share of Medicaid expansion costs as Montana, and we add in the estimated 3.8 years of expansion that the Rescue Plan federal match rate incentive would cover, Wyoming’s expansion would be funded for about a decade at no net cost to the state. Assuming the upper bound estimate of Montana’s offsetting cost savings and revenue increases as a share of expansion costs would produce a financial windfall for Wyoming, that would more than pay for the costs of Medicaid expansion indefinitely.^[37]

These calculations are rough and do not factor in any potential revenue increases due to expansion’s impact on the state economy or state savings due to reduced uncompensated care costs, which would likely lead to even more savings. And importantly, they do not consider the benefits to the people of Wyoming in increased financial security, reduced medical debt, better health outcomes and saved lives, which are social benefits that far outweigh the fiscal costs of expansion.

The evidence from Montana makes it clear that Medicaid expansion would not only provide tens of thousands of uninsured people in Wyoming with critical health coverage, but it would also be the fiscally sensible choice.