The Center on Budget and Policy Priorities released a report last week on the cost to states to implement the Medicaid expansion. Portions of the report are below, but you can read the full report, including references, by clicking here. 

Shortly after the Supreme Court ruled that states can choose whether to adopt the health reform law’s Medicaid expansion to cover low-income parents and other adults, some governors declared that they will forgo the expansion, claiming it would place a heavy financial burden on their states.  Claims that states will bear a substantial share of the costs of expanding Medicaid, however, and that the expansion would drain state budgets do not hold up under scrutiny.  

The Congressional Budget Office (CBO) estimates that the Medicaid expansion will add very little to what states would have spent on Medicaid without health reform, while providing health coverage to 17 million more low-income adults and children.  In addition, the Medicaid expansion will reduce state and local government costs for uncompensated care and other services they provide to the uninsured, which will offset at least some — and in a number of states, possibly all or more than all — of the modest increase in state Medicaid costs.  Expanding Medicaid is thus a very favorable financial deal for states.

Moreover, a state will have to incur certain costs under health reform even if it does not expand Medicaid.  The marginal cost of the Medicaid expansion is much smaller than critics generally claim.

• The ACA’s requirement to purchase insurance, its simplification of Medicaid eligibility procedures, and the significant outreach and education that will be aimed at encouraging individuals to apply for subsidized coverage in the exchanges will increase Medicaid participation among individuals who are currently eligible but are not enrolled even if the state rejects the Medicaid expansion.  A state will incur some additional costs for covering some of these individuals regardless of whether it expands Medicaid, and such costs cannot be attributed to the Medicaid expansion.
• The Affordable Care Act also requires states to increase Medicaid payments for certain primary care services in 2013 and 2014, with the cost of the increase funded entirely by the federal government.  Although there is no federal requirement to maintain these rates beyond 2014, many states have indicated that they are likely to do so.  To the extent that a state chooses to maintain these payment rates for its current Medicaid population, this cost, as well, should not be considered a part of the cost of expanding Medicaid.  (If a state adopts the Medicaid expansion, the cost after 2014 of continuing to pay the higher rates for primary care services provided to newly eligible beneficiaries would be covered at the very high federal matching rate for newly eligible beneficiaries, so it would be paid almost entirely by the federal government.)

Contrary to claims made by some of the Medicaid expansion’s critics, the expansion does not impose substantial financial burdens on states.  The additional state Medicaid spending that CBO expects to result from the expansion equals 2.8 percent of what states would have spent on Medicaid in the absence of health reform; this estimate includes the cost of covering individuals who are currently eligible but not enrolled.  Estimates from other respected independent sources are similar or even lower — and both those estimates and CBO’s reflect state costs before factoring in state savings in areas such as uncompensated care costs and mental health services.  

CBO expects that the expansion will result in 17 million more people being covered, which will significantly reduce state costs for uncompensated care and related programs and offset some or potentially all of the increase in state Medicaid costs.  

In short, the federal government will pick up the overwhelming share of the costs of the Medicaid expansion, making it an extremely favorable deal both for states, as well as for their low-income uninsured residents.