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10 Frequently Asked Questions About Medicaid Expansion

SOURCE: AP/ Charles Dharapak

Supporters of health care reform rally in front of the Supreme Court in Washington on the final day of arguments regarding the health care law signed by President Barack Obama.

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A centerpiece of the Patient Protection and Affordable Care Act—often referred to as “Obamacare”—is the expansion of Medicaid eligibility to people with annual incomes below 138 percent of the federal poverty level, or $26,347 for a family of three and $15,417 for an individual. Despite the fact that the Affordable Care Act was passed into law in 2010 and was subsequently upheld by the U.S. Supreme Court in the summer of 2012, many questions persist about the law, particularly as it relates to Medicaid expansion—what that expansion actually means, who it will cover, what it will cost, and more.

As we mark the third anniversary of the passage of the Affordable Care Act, it is important not to lose perspective about what Medicaid expansion actually means for the millions of people it will help to insure, as well as the economic benefits it will bring to states and local economies. Here are the 10 questions about Medicaid expansion under the law that are asked most frequently and are too often answered incorrectly.

Who is and who isn’t gaining coverage under Medicaid expansion?

Medicaid, jointly funded by the state and the federal government, requires coverage for certain groups of individuals: low-income children and some of their parents; poor pregnant woman; certain low-income seniors; and some individuals with disabilities who are under the age of 65. Under the Affordable Care Act, Medicaid eligibility will be extended to all individuals with incomes up to 138 percent of the federal poverty level beginning in 2014—$26,347 for a family of three and $15,417 for an individual.

Medicaid expansion will cover all families and individuals below this income level, including groups who are currently left out of public health coverage such as low-income, able-bodied parents, low-income adults without children, and many low-income individuals with chronic mental illness or disabilities, who struggle to maintain well-paid jobs but don’t currently meet disability standards for Medicaid. The expansion of Medicaid eligibility also cuts the rate of uninsured veterans and Native Americans in half and provides early treatment to people struggling with HIV. Unfortunately, many of the poorest citizens in states that may decide not to expand Medicaid will be victims of a coverage gap. When the Affordable Care Act was written, federal policymakers assumed those with the lowest incomes would be covered under the expansion. Consequently, they did not set up further ways for these groups to obtain health care coverage such as the federal subsidies that those with slightly higher incomes will receive under the law.

What does the “Obamacare” Supreme Court ruling really mean?

The Supreme Court upheld the Affordable Care Act in 2012, but it gave the states the choice to opt out of Medicaid expansion. It is now rests with governors and state legislatures to decide whether it is in the best interest of the state to implement the Medicaid portion of the law that affords health coverage to those in need.

If a state chooses not to expand the program, the federal government cannot take away the Medicaid funds a state already receives. So while states have the “carrot” of extra Medicaid funding if they take up the expansion, they don’t have the “stick” of losing federal funding if they do not take it. This ability to opt out of the expansion but suffer no serious consequences undermines the law’s ability to ensure that millions of low-income Americans benefit from the expansion of Medicaid coverage. This caveat in the Court’s decision opened the door to allow governors to deny an essential aspect of health care reform. Unfortunately, states opting out of Medicaid expansion do so to the detriment of their residents, as well as their state budget.

What will Medicaid expansion actually cost states?

The federal government is paying for the vast majority of the Medicaid expansion. States don’t have to pay any percentage of the cost for the expansion until 2017, at which point the federal government will gradually transition to covering 90 percent of the cost through 2020. Before accounting for state and local government increases in savings and revenues, the nonpartisan Congressional Budget Office estimates that states will increase their Medicaid spending by only 2.8 percent while providing health coverage to 17 million more low-income children and adults between 2014 and 2022.

States that expand their Medicaid coverage will not incur unsustainable costs; rather they will enjoy net fiscal gains due to offsets in savings and increases in revenues. Sources of increased revenues include state sales taxes, insurance taxes, and prescription-drug rebates. States will also incur savings, as the federal government will be paying a much higher share of the cost for populations that were previously ineligible and therefore solely paid for by states. This will free up billions of dollars from state budgets, as is the case in Florida, where projected annual savings are $100 million, and in Ohio where projections call for $1.9 billion in savings and increased revenues by 2022. Coverage for women with breast and cervical cancer, and coverage for some mental health and substance-abuse treatment for previously uninsured poor individuals can now be covered by Medicaid, as opposed to what was previously covered solely by states.

Some states are acknowledging that they could afford the expansion, but they fear the federal government will “cut-and-run” at some point, leaving them with a majority of the cost burden. The reality is, however, that there is absolutely no precedent for this. Moreover, if a state is committed to expanding Medicaid, there are ways to address this concern. Both Arizona and Nevada, for example, have adopted the “circuit-breaker” approach, in which the state will opt-out of the expansion only if the federal government’s share of matching funds falls below a certain level.

What are the costs if Medicaid isn’t expanded?

There is both a human and fiscal cost if Medicaid expansion is rejected. States will have to continue to pay for the treatment of the uninsured in hospitals, public clinics, and other care facilities with state tax dollars, which is much more expensive than the minimal share they’d pay under the Medicaid expansion. And when it comes to the impact of Medicaid coverage, several studies indicate that Medicaid coverage leads to overall better health and lower mortality rates. According to a study by the state of Oregon, after one year of enrollment in Medicaid, low-income childless adults significantly reduced their financial strain, increased their health care use, and reported having overall better health. Expanded Medicaid coverage also led to decreased rates of delayed care and decreased mortality rates, especially among residents of poorer counties, as indicated by the New England Journal of Medicine.

Where do the federal dollars go when a state decides not to expand Medicaid?

When a state chooses to forgo expansion, it does not receive the extra funding from the federal government. This means residents’ federal tax dollars will still be going toward the implementation of Medicaid expansion in other states but not in their own. This is a scenario that Gov. Jan Brewer (R) of Arizona, an outspoken foe of Obamacare, cites when explaining her surprising support for Medicaid expansion. Gov. Brewer doesn’t want to forfeit federal funds that will otherwise go to states that have agreed to expansion, which is why she has also agreed to it.

How will low-income individuals and families benefit from Medicaid expansion?

For the millions of low-income adults and children who would become eligible for care, Medicaid expansion is much more than access to health insurance. Every dollar a mother doesn’t need to spend on out-of-pocket costs when her child comes down with the flu can go toward food, housing, and other necessities. Medicaid coverage translates into financial flexibility for families and individuals, allowing limited dollars to be spent on basic needs, including breakfast for the majority of the month or a new pair of shoes for a job interview. Medicaid expansion means more than health care coverage; it is an expanded opportunity for success and a pathway to the middle class.

Does Medicaid expansion take flexibility away from the states?

According to Department of Health and Human Services Secretary Kathleen Sebelius, states may adapt the Medicaid expansion so that is meets their unique needs. Expansion is an opportunity for innovation, and even allows for the program to be modeled after private plans, as Arkansas has proposed. The Arkansas model would use federal Medicaid dollars to provide the state’s lowest-income populations with private insurance. The Affordable Care Act proposes that the state oversees Medicaid merely as an attempt at proper protection and choices for beneficiaries. But just as there is no “one-size-fits-all” in current Medicaid programs, there are likely many different ways states can grow and expand their particular programs while still ensuring millions of low-income individuals gain health coverage.

What does it mean for Medicaid expansion to run through private insurers?

This means that the money that the federal government is giving each state to expand its Medicaid enrollment will go toward helping prospective Medicaid recipients purchase private insurance in the new health insurance exchanges. This is a path that several states are considering but hesitant to adopt. One reason cited in support of expanding with this option is that providers would be paid the same amount whether a patient is a recipient of Medicaid or private insurance, which theoretically may increase the array of doctors who will treat Medicaid patients. Additionally, it would make the program run more smoothly and would provide continuity as beneficiaries’ income levels may fluctuate, forcing them to switch between their expanded Medicaid coverage and a private insurer in the state marketplace. But the Department of Health and Human Services agreed to a Medicaid bridge plan, which mitigates this worry by allowing individuals transitioning from Medicaid coverage to coverage through a health exchange to remain with the same plan and provider network.

This approach, however, requires monitoring going forward because it comes with many risks. If states that are otherwise unwilling to expand their Medicaid program are willing to try this approach, it could help guarantee that millions more individuals will have access to health care. Medicaid is crucial because of the array of benefits it provides, which for the newly eligible include hospitalization, maternity and newborn care, emergency services, and preventative care. Under the Medicaid law, this approach must provide the same benefits as the traditional Medicaid program in a cost-effective manner, and it is yet to be seen if states can meet this standard.

Will Medicaid expansion help the economy?

When hundreds of thousands of individuals in a state are gaining health care coverage, there must also be thousands of health care professionals available to care for them. Likewise, there will be an increased demand for equipment for medical tests, the production of extra beds, more maintenance jobs at growing health care facilities—the list goes on. In short, Medicaid expansion is an engine for job creation.

According to the Health Policy Institute of Ohio, by 2015 Medicaid expansion will create at least 23,000 new Ohio jobs in health care and other related industries, increase the earnings of Ohio residents by at least $16.7 billion, and increase the state’s total economic activity by at least $18.6 billion from 2014 to 2022. In fact, costs to employers could total $876 million to $1.3 billion in the states that oppose, are leaning against, or remain undecided on expansion as the result of penalties for noncompliance with the Affordable Care Act.

What’s so important about the expansion of Medicaid?

As is, Medicaid is incredibly effective at providing coverage for one in every four children, 21 percent of low-income adults, and 60 percent of nursing-home residents nationwide. If Medicaid didn’t exist, most of the 50 million Americans whose coverage comes solely from Medicaid would join the ranks of the more than 40 million individuals in this country who are currently uninsured. Expansion of Medicaid coverage for low-income pregnant women led to a significant reduction in infant mortality, and the expansion of coverage for low-income children in the 1980s and early 1990s led to a significant reduction in child deaths.

Conclusion

At its core, Medicaid provides coverage for the poorest and most disadvantaged Americans and provides economic security for the middle class. Medicaid’s federal-state partnership structure is an effective way to provide care and assistance to individuals who need it most. Medicaid’s purpose and its laudable track record must be considered when arguing the merits of its expansion through the Affordable Care Act.

Sarah Baron is a Special Assistant at the Center for American Progress.

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