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States Rejecting Medicaid Expansion Forgo Billions in Federal Funds

 |  By John Commins  
   December 05, 2013

The 20 states rejecting Medicaid expansion are leaving billions of dollars in federal funds on the table, even as the taxpayers of those states pay for the expansion costs for states that accept the deal.

The 20 states that are rejecting Medicaid expansion under the Patient Protection and Affordable Care Act are leaving billions of dollars in federal funds on the table, even as the taxpayers of those states pay for the expansion costs for states that accept the deal, a new study from the Commonwealth Fund shows.

"In states that don't expand their Medicaid programs the people in their state who are below 100% of poverty will not be eligible for new options for health insurance under the ACA," says Sara Collins, vice president, healthcare, at the Commonwealth Fund. "Taxpayers across the country are contributing to this program, but for the states that don't expand their programs it means that they are not getting those benefits that the residents in other states are getting. There is both a healthcare loss for individuals who aren't eligible for any of the new options under the law and there is a significant economic loss for states that don't move forward."

The study—How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion—examines federal taxes paid by state residents. States with the highest net losses include Texas, which will see a net loss of $9.2 billion in 2022; Florida, which will lose $5 billion; Georgia, which will lose $2.9 billion, and Virginia, which will lose $2.8 billion.

The study is the first to calculate the net cost to taxpayers in states turning down Medicaid expansion. Using data from the Urban Institute projecting Medicaid enrollment and spending under the law in the year 2022, researchers estimated the effects of states' decisions about whether to accept the health reform law's expansion of the Medicaid program to residents with incomes at or below 138% of the federal poverty level ($32,499 for a family of four).

The expansion became voluntary for states after the U.S. Supreme Court's 2012 ruling. Medicaid is mostly funded by the federal government, which pays 100% of the expansion costs through 2016. The federal contribution will be reduced to 90% by 2020, where it will remain after that.

The Commonwealth Fund study estimates that if all states expanded Medicaid under the law, as many as 21.3 million people would gain coverage by 2022. In addition to improving access to care and financial security for the newly insured, healthcare providers in states would benefit from reduced uncompensated care costs, the study suggests.

Collins says the study may actually be low-balling the costs to residents of states that reject the Medicaid expansion, because it does not factor in the value of cost-shifting as a hidden tax to pay for uncompensated care. "It actually is an underestimate in some ways because local tax dollars finance uncompensated care at hospitals," she says. "To the extent that those federal dollars would replace that, those local expenditures that local taxpayers are still financing would otherwise be covered were people to have health insurance coverage."

Collins says there are signs that some states are beginning to reconsider their rejection of Medicaid expansion, now that they face the loss of billions of dollars in federal aid.

"Over time, states are going to look at the costs both in terms of lost health insurance coverage for residents but also the significant economic impact on their states and on their safety net hospitals, who will continue to have to serve people who are uninsured even though there is federal funding available for them," she says. "The argument and rationale for expanding Medicaid is pretty strong on multiple counts. We may see a similar trend that we saw in the original Medicaid program, that all states eventually participated in the program just as they did eventually with the Children's Health Insurance Program."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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