Medicaid Expansion: A Costly Gamble for the States

In addition to the regular federal funding for state Medicaid programs, the Affordable Care Act provided states that expanded their Medicaid populations with the funding to do so. While it initially covered 100 percent, the federal government now only picks up 90 percent of the tab for the expansion population. But that may soon change. As predicted, budgetary concerns have made cuts to federal Medicaid spending likely.

Recent budget proposals have cut the federal portion of the funding for Medicaid expansion, leaving the 40 states that have expanded their Medicaid programs in a lurch. Medicaid already makes up around a third of most state budgets, and cuts could hit hard.

States that took the federal government’s offer and expanded their Medicaid programs will face a difficult choice. They can either look for ways to shoulder the costs themselves, or they will be forced to make cuts in coverage. Only 10 states prepared for this eventuality, passing “trigger laws” that roll back Medicaid expansion if federal funding drops below 90 percent.

Many policymakers saw this coming, and ALEC examined this scenario in the Wall Street Journal back in 2023. Cuts to federal Medicaid expansion funding were clearly inevitable even then. Thankfully, 10 states have avoided this financial cliff by refusing to expand Medicaid to a larger population. Those state Medicaid programs will be in a much better position than their neighbors if these cuts come to fruition.

Medicaid expansion has already been a financial drain on states. Colorado recently announced it needed to spend an additional $73 million on Medicaid this year due to larger than projected demand for health care services. Lawmakers in Idaho and Montana introduced efforts to phase out Medicaid expansion this year, a measure that proponents in Idaho claim will save the state $110 million annually.

States believed they were receiving a proverbial free lunch for Medicaid expansion, which was unsustainable for the federal government. As we detailed in Myths vs. Facts, with $36 trillion in debt, it is unlikely the federal government will continue to bear 90% of the cost of expansion.  Expanding the Medicaid population comes at the expense of the most disadvantaged and needy among us and risks the financial stability of states. Medicaid expansion was always a bad bet for states, and now many will have to deal with the fallout.