I’ve heard the federal government pays for the Medicaid expansion, but only for a few years. Then the state is on the hook for costs?

Q. I hear people saying Medicaid expansion is a great idea and that the federal government pays for it. But doesn’t the federal government only pay for a few years, and then the state is on the hook for the costs?

A: States will never be responsible for more than 10 percent of the cost of expansion. The federal government paid the full cost of expansion for the first three years (2014 through 2016). The federal government’s portion gradually drops to 90 percent by 2020, and stays there permanently. For states that expand Medicaid, the federal funding they receive will always dwarf the amount that the state has to spend.

Consider Maine, where voters approved Medicaid expansion in a ballot initiative in 2017. Once the state expands Medicaid, it’s expected that the state’s portion of the cost will be $55 million in the first year (keeping in mind that Maine missed out on the years when the feds would have paid 100 percent of the cost, since they delayed Medicaid expansion by several years), but the federal government will pay $525 million in the first year.

States that don’t expand Medicaid are going to be in an increasingly tight spot, especially as the federal Disproportionate Share Hospital payments are reduced and phased out (because Medicaid expansion was intended to be universal, so there wasn’t supposed to be much uncompensated care to offset with DSH payments).

In states that aren’t expanding Medicaid, there’s still a large population of uninsured people. They still need emergency care, and often need to use emergency rooms in order to treat chronic conditions that could be more efficiently managed (and at a much lower cost) by a primary care doc if the patients had insurance.

When these uninsured residents receive emergency care, everyone in the state, including the hospitals and the insured population, ends up footing the bill eventually.

Medicaid expansion is a much better plan than trying to manage a large uninsured population by relying on uncompensated care—especially since the federal government will always pay for at least 90 percent of the additional costs created by Medicaid expansion.

31 states and the District of Columbia have expanded Medicaid as of early 2018. Six of them had done so since mid-2014. There are still 19 states that have not expanded Medicaid. Some have indicated that they’ll consider it now that the Trump Administration has made it clear that they’ll consider Medicaid expansion waivers that include work requirements and possibly even lifetime benefit caps.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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