States Will Pay Little for Reform's Medicaid Expansion

Although most of the coverage expansion under the Patient Protection and Affordability Act will come from adding to the Medicaid rolls, state governments will not have to spend much more on the program thanks to funding from the federal government, according to analysis from the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured.

Enrollment in Medicaid will increase nationwide by more than 27% between 2014 and 2019, the study predicts. However, state spending on the program will inch up only 1.4%, while the federal government increases spending 22% to cover the cost.

Some of the states with the lowest coverage levels today will get the most bang for their buck. Alabama will see 53% reduction in the number of uninsured patients thanks to the Medicaid expansion, and the federal government will cover 96% of that cost. Texas, which also has a high number of uninsured patients, will see nearly a 50% decrease in its uninsured and pay only 5% of the cost of expansion.

Although the impact will be less in states with low levels of uninsured, the financial burden will be even smaller. Massachusetts, for example, already has the lowest percentage of uninsured residents in the country, so the Medicaid expansion will only result in a 10% reduction. However, the federal government is expected to pay for 100% , and state spending on the program may actually decline 2%.

Mississippi will have the biggest increase in state spending, at 4.8%.

The cost calculations were based on a higher federal match rate that assures the federal government finances much of the cost of Medicaid expansion as reform kicks in. The regular match rate is determined on a state-by-state basis by a formula, and ranges from 50% to 76%. Under reform, the match rate jumps to 100% in fiscal years 2014-2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% in 2020 and after.

State outreach may ultimately determine the success of the expansion and the financial burden local governments have to bear. A more aggressive outreach and enrollment campaign could lead to much higher coverage numbers, researchers said. The baseline prediction of a 15.9 million increase in Medicaid enrollees could jump to 22.8 million, under what researchers dubbed the "enhanced outreach scenario."

"The outcome of state actions will affect the extent to which implementation of health reform reaches its fullest potential. If states fall short of implementation expectations, fewer individuals will be covered and more individuals will remain uninsured. Under this scenario, states would also forgo large sums of federal funding tied to the coverage of those made newly eligible under reform," the report said.

The new data contradicts earlier criticisms from some state officials, who said the healthcare reform legislation's reliance on Medicaid would place the financial burden primarily on state governments.

"For a relatively small investment of state dollars, states could see huge returns in terms of additional coverage for their lowest income residents—with federal dollars covering the bulk of the bill," said Diane Rowland, executive vice president of the Foundation and executive director of the KCMU, in a release.