State Budgets

The Tradeoffs of Medicaid Expansion: Jonathan Williams on American Radio Journal

Medicaid expansion has put states and their taxpayers in a perilous fiscal situation relying on federal funds which will eventually dry up.

In his latest American Radio Journal commentary, ALEC Executive Vice President of Policy and Chief Economist Jonathan Williams discussed the myths and facts of Medicaid expansion the leave states on the hook for growing and unpredictable costs.

Medicaid was established in 1965 as a part of President Lyndon B. Johnson’s Great Society agenda, which expanded sweeping federal welfare programs. As was originally written, Medicaid administered by the states but paid for by a mix of the federal government in the States, provided coverage for a limited population of individuals with disabilities and truly impoverished families.

The so-called Affordable Care Act of 2010, known by many as Obamacare, subsidized states to expand Medicaid dramatically, now including able bodied working age adults earning up to 138% of the federal poverty level.

Currently, 40 states have enacted Obamacare’s Medicaid expansion. Unfortunately, Medicaid expansion has failed to live up to its promises and has left hardworking American taxpayers on the hook for these growing and unpredictable costs. incorrect assumptions about the future of federal funds puts expansion states in jeopardy.

States generally assume that Washington, DC will continue to pay 90% of the Medicaid costs for this expansion population. The level is already down from 100% from 2012 to 2017, and then 95% federal subsidy until 2019. Unfortunately, for state balance sheets, there is absolutely no guarantee that this current 90% subsidy rate will remain in perpetuity.

Indeed, it is almost a certainty that it will not, given the massive amount of federal debt accrued by Washington DC, now standing at a total of more than 34.5 trillion US dollars. Breaking that gargantuan number down, every taxpayer in the United States would need to pay $266,500 to retire the national debt today.

I don’t know about you; I don’t have an extra $266,500 sitting around to use. The nature of Medicaid’s cost sharing between state and federal government makes an obvious opportunity for DC to pass off financial burden to the states. State governments will be left to weather the fiscal consequences when federal funds go away. Essentially, in the words of the great Milton Friedman, states need to realize there is no such thing as a “free lunch” coming from Washington DC.

Under the current assumptions regarding federal support, planning for the cost of Medicaid expansion has proved to be a massive challenge for the states. Reviews of the program’s cost since it began in 2012 have shown more people signing up in higher cost per person than expected. According to the Kaiser Family Foundation, actual enrollment among expanded population has been nearly three times the estimates produced by the states.

On top of that, the current person costs for Medicaid have been 76% higher than original estimates. Put together, these two factors mean that states attempting to plan expenditures for Medicaid expansion are essentially doing so in the dark — without any real reliable estimates for how much they will actually have to pay down the road.

Worse still, there seems to be no consistent pattern to these cost overruns. Illinois saw enrollments and expenditures, respectively, 90% and 81% higher than forecasts, while in Washington State, enrollments and expenditures in 2022 were more than three times more than what was expected.

Even Indiana, a state that was famously an early adopter of Medicaid expansion, which attempted some conservative safeguards to supposedly protect for many of the program’s critical faults, is not exempt from these troubles. The state recently announced that incorrect forecasts lead to a $1 billion Medicaid budget shortfall for Hoosiers. Now, Indiana taxpayers will literally pay the price for the unpredictable and unsustainable Medicaid expansion.

ALEC Health and Human Services Task Force Senior Director Brooklyn Roberts recently debunked the most common Medicaid expansion myths. She writes at the program which supporters claimed would have access to health care for low-income individuals often makes it harder for disabled and the truly needy recipients to receive care, as increased enrollment and expansion states put more stress on already strained resources.

The expansion also crowds out private insurance. When individuals switch from private plans or even Obamacare plans on exchanges to Medicaid, the market for private options shrinks, and those remaining are left with inferior coverage. Medicaid doesn’t solve the problems faced by rural hospitals either, as supporters claim. Since the government only pays an average of 60% of what private insurance pays, hospitals receive less revenue from those who switch, and their financial troubles only grow worse.

A study from our friends at the Foundation for Government Accountability found that hospitals in expansion states saw profit margins shrink. Shockingly, 50 hospitals have closed in the states that have expanded Medicaid. Medicaid expansion has put states and their taxpayers in a perilous fiscal situation relying on federal funds which will eventually dry up. Meanwhile, this massive entitlement program has added huge amounts to the national debt, reduced quality care options for truly needy patients, and hurt doctors and hospitals across the country.

Listen to the full breakdown.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth