State budgets loosening belts due to enhanced federal funds, increased revenue

Medicaid expansion is a source of revenue and savings for many states. The Robert Wood Johnson Foundation (RWJF) sponsored research reviewing expansion in 11 states, which revealed that Medicaid spending actually grew more slowly in expansion states as opposed to those that did not expand. Additionally, expanded coverage was attributed to reducing hospitals’ uncompensated care costs by $7.4 billion in 2014, compared to non-expansion estimates.

Saving money, creating jobs

The impact of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) has been a hot topic in recent days, as March 23, 2016 marked six years since the president signed the legislation. States that chose to expand their Medicaid programs to include new populations under section 2001 of the ACA began to do so in 2014, but the decision to do so was and still is a controversial topic.

Despite the hesitation to expand, mainly coming from Republican-led states, the RWJF’s report suggested that savings and revenue make expansion a wise financial option, rather than an expensive one. Between fiscal years (FY) 2014 and 2015, Medicaid spending in non-expansion states grew by 6.9 percent, while expansion state spending growth was limited to 3.4 percent. Expansion states saw jobs grow at a faster rate in 2014.

Tracking the money

States were able to rely on enhanced federal matching funds for the new population. The federal government offered 100 percent federal funding for the first three years of Medicaid expansion, with a gradual reduction to 90 percent in 2020. In the past, certain enrollees deemed “medically needy” were covered through waivers, requiring states to bear between 30 and 50 percent of the cost for coverage. Under expansion, some of these enrollees were eligible for full coverage at a higher matching rate.

For example, many states had previously covered pregnant women under waivers at a hefty cost. However, because many women who became pregnant were already enrolled in Medicaid in the new adult group, states were able to take advantage of federal funding. Maryland estimated savings of $8.2 million in state fiscal year (SFY) 2015, West Virginia reported $3.8 million in savings in calendar year 2014, and Arkansas saw a 50 percent decrease in spending for treating pregnant women.

States were also able to use expansion to shift certain costs for services that had been offered to the uninsured through public health programs paid for with general fund dollars to the federal government. Michigan estimated that it would save about $190 million in SFY 2015 by transitioning those enrolled in some behavioral health services to Medicaid. In addition to finding savings, the states were able to use fees on providers and health plans to take a piece of the additional revenue generated by higher business volume. California expected nearly a billion dollars in extra revenue through 2015 from such sources.