What are the effects of not expanding Medicaid?

An essential provision of the Affordable Care Act (ACA) is expanding Medicaid coverage to low-income Americans (those with incomes less than 138 percent of the federal poverty level (FPL)). However, a Supreme Court decision in 2012 made Medicaid expansion optional for states and currently 28 states plus the District of Columbia have agreed to do so. From 2014 to 2016, the federal government will cover 100 percent of expansion cost. Afterward, federal support will decline each year, reaching and remaining at 90 percent by 2020.

Medicaid expansion has of course become a highly politicized issue, partly because it represents one of the few opportunities Republicans have to express disagreement with the ACA through policy, instead of voting on bills with no chance of leaving Congress. Moreover, conservatives often worry about the cost burden of growing Medicaid and have expressed that the current program discourages personal responsibility. Therefore, in addition to the 22 states that have rejected expansion, six others have expanded with adjustments to the traditional model, including charging insurance premiums^[i], copayments to access care, and monthly payments that decline when beneficiaries engage in healthy behaviors like smoking cessation and obesity reduction.

Indiana became the most recent state to expand Medicaid, when the federal government approved its version, which includes premiums, health savings accounts type transfers, and for the first time, locking residents out of coverage for six months if they fail to pay premiums. Meanwhile, concurrent efforts by the governors of heavily Republican states, Tennessee and Wyoming, had their expansion plans blocked by state legislatures, as previously occurred in Utah and Florida.

In the 22 states that have not expanded, there is a substantial gap in coverage between those with incomes too high to qualify for their state’s current Medicaid program, but too low to obtain federal premium subsidies on insurance exchanges. Given that 21 of these 22 states provide no coverage for adults without dependent children, non-expansion produces the counterintuitive situation in which the poorest are denied coverage, while those with incomes above 138 percent FPL receive premium subsidies to buy health insurance.

Before the ACA, researchers noted that expanding Medicaid eligibility may not necessarily lead to greater insurance coverage because:

• Many Medicaid eligibles are not subject to the federal mandate as their income falls below the federal filing threshold
• Pre-ACA, Medicaid uptake among the eligible population was far from complete (estimated at 62 percent), and
• The states with the worst Medicaid enrollment before the ACA are the states that must expand coverage the most now. For instance, states such as Oklahoma, Florida, and Oregon were estimated to cover less than half of their Medicaid eligible population even before expansion.

Current Results from the Medicaid “Expanders”

First, despite these challenges, the ACA has significantly expanded Medicaid enrollment. In fact, Medicaid enrollment has increased by 18 percent in the last year; offering coverage to 69 million low-income Americans as of November 2014. For states that expanded Medicaid, enrollment increased 25.5 percent, while non-expansion states saw a rise of 7 percent. One of the most dramatic coverage expansions occurred in Kentucky, where a combination of Medicaid expansion, low incomes, and a historically very low income eligibility threshold, increased coverage by over 70 percent.

The Urban Institute estimated that non-expansion states are causing six million people across the U.S. to remain uninsured in 2016.^[ii] Texas represents the largest number of uninsured at 1.5 million, with three states—Texas, Florida and Georgia—accounting for half of that total. The report also estimates that states not expanding will forego $37 billion in federal matching funds and $14 billion in hospital reimbursement in 2016.

Second, multiple studies demonstrate that the short- and long-term benefits of Medicaid coverage are substantial. A study of Oregon’s Medicaid program, which used a lottery to determine eligibility, found higher utilization rates across hospitalizations, primary care, and preventive care, but also lower out-of-pocket medical expenses and medical debt, and better self-reported health outcomes compared to the uninsured. The study also found a decline in depression and catastrophic expenditures from health spending. And although health benefits are less clear, an earlier study also showed that Medicaid expansion reduces all-cause mortality.

Finally, while many critics point to the large cost of Medicaid programs, one recent analysis indicates that Medicaid eligibility for children produces enough additional tax collections over the long term to approximately pay for itself. The study found that childhood Medicaid raised cumulative taxes paid, reduced government earned income tax credit transfers, and increased cumulative wages among females.

The evidence therefore indicates that the benefits of Medicaid coverage are large and that the long-term public cost may at least be partly mitigated by higher tax recipients from beneficiaries over time, while non-expansion states are forgoing significant federal transfers. Given that an increasingly large share of government aid has been focused on the working poor instead of those with the lowest incomes, Medicaid expansion represents an opportunity to improve the welfare of those worst off as this group continues to recover from the Great Recession.

Note: This post was updated on February 25 to correct the number of states that have expanded Medicaid from 38 to 28.

[i] Premiums only apply to those with incomes over 100 percent FPL as CMS rejected charging premiums to those making less.

[ii] Excludes estimates of the uninsured from Indiana and Pennsylvania because these states have subsequently expanded Medicaid.