Can the States Afford PPACA’s Medicaid Expansion?

As states debate whether to opt into the Medicaid expansion, opponents argue that the state cannot afford the additional expense. A recent post discussed the estimates made by Florida Governor Rick Scott (R) and the challenges to his numbers.  How much more will the Medicaid expansion cost?

As with all things economic, the cost depends on what you measure. While governors of states that opposed the health reform law claim that their budgets will explode, the Center on Budget and Policy Priorities (CBPP) points to studies finding that the states would spend from 1.1 percent to 2.8 percent more with the expansion than they are projected to spend without it, and that states and local governments will save much of what they now spend for state-only programs, mental health services and uncompensated care funds. When Massachusetts implemented its health reform measures, it replaced its Uncompensated Care Pool with a Health Safety Net fund. In the first full year of operation, the Safety Net fund spend 38 percent less than the uncompensated care  fund it replaced.

It’s interesting to note that some of the states that can’t afford the extra expense have cut taxes. For example, in 2011, Indiana enacted a 2 percent cut to the corporate tax rate, from 8.5 percent to 6,5 percent, The decrease is spread out over four years at 0.5 percent per year. The cut will cost the state $114.9 million between 2013 and 2015.  Can the state afford it? It is reported that the new governor who takes office in January will have a $1.4 billion reserve. Governor Mitch Daniels has left the decision on expansion to his successor.

 Arkansas cut about $35 million in taxes in fiscal 2012. About $5 million of that  consisted of cuts on sales taxes paid by consumers. Kansas passed substantial cuts to income tax rates and sales taxes and eliminated nonwage taxes for many businesses. The CBPP reported last year that eight of the states with budget shortfalls had reserve funds they were not using. CNN  reported that several states cut tax personal income, sales and/or corporate rates for 2012.The New York Times reports that Pennsylvania lowered some taxes and cut a cash assistance program for people with disabilities.

A study published in the New England Journal of Medicine compared states that had expanded their Medicaid programs with states that had not. They were asking whether the expansion actually improved public health. They observed the health status of individuals from 20 to 64 and local statistics on mortality. In the first year, they found that beneficiaries  reported their health status more positively after Medicaid expansion. After five years, they found significant reductions in mortality. The reductions were largest in areas with higher rates of poverty and among nonwhite populations. The number of uninsured decreased when Medicaid expanded. Fewer people delayed getting care  they needed. In short, expanding Medicaid to adults saves lives and improves health.

The states planning to adopt the expansion and the states that are planning not to do so have fundamentally different answers to the question whether everyone should have health coverage. Asked what should be done to help the 30 million people who would get coverage under health reform if  the law were repealed, Senate  majority leader Mitch McConnell recently told Fox news, “That’s not the issue. …The issue is how to improve our system ,,, which is the best system in the world.” Pressed as to whether 30 million people having no coverage at all was an issue, he said, “what we’re not going to do” is have a system like Western Europe’s.

The states that oppose the Medicaid expansion don’t just disagree about how to get everyone covered -they disagree about the role of government in general.