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From Health Law Daily, December 5, 2013

Medicaid expansion projected to be substantial new source of federal funds for participating states

By Melissa Skinner, JD

In an issue brief released by the Commonwealth Fund, the financial advantages of states opting in or out of Medicaid expansion were analyzed and the results revealed that Medicaid expansion in participating states could form a new substantial source of federal funding for those states. The brief used three methods to calculate how the federal funds that states participating in Medicaid may be measured in relation to other federal funds received by those states and show how states opting out of the expansion stand in comparison to states electing to participate in the enlargement. Overall, the study highlights that although many states have rejected the Medicaid expansion blaming the potential negative impacts the expansion may have on state budgets, the data reveals that states electing to expand Medicaid will find that the costs to grow their Medicaid population will constitute, on average, less than one percent of the states’ budgets.

Increased federal funds. The brief compared the amounts expected to flow from the federal government to the states that are expanding Medicaid through 2022 to the amounts received by state governments from the federal funding sources of highway subsidies and defense procurement contracts. The payments flowing from the federal government to the participating states for Medicaid expansion are predicted to be 2.35 times greater, on average, than those received from federal highway funding, with Medicaid funds exceeding highway funds in all but eight states. Although defense procurement funding is expected to exceed Medicaid expansion amounts received by states overall, the brief projected that in eight states the Medicaid expansion payments will also exceed amounts retained for defense contracts.

Costs of not participating. Because the Medicaid expansion will, in large part, be funded by the federal government and drawn from federal general revenues, taxpayers in non-participating states will bear a significant share of the burden of Medicaid expansion costs without enjoying any of the benefits. The analysis from the brief reveals that each and every state failing to participate in the expansion will realize a net loss of federal funds. Viewed in this manner, by choosing not to participate in the extension of Medicaid to more individuals, the estimated cost to Texas taxpayers alone is over 9 billion.  

State’s share of Medicaid. For states that choose to expand Medicaid, the federal government will bear 100 percent of the cost for the first three years, with that share declining to 90 percent by 2020. The study finds that when states are required to contribute to the expansion costs, most states will find this 10 percent share will constitute an average of one-sixth of what states already pay to attract private funds, with only four states predicted to pay more than what is typically paid to entice private businesses to the state.

Early projections of the large numbers of individuals who will be covered due to the Medicaid expansion in participating states were also recently disclosed. Data suggests that over 1.46 million individuals were now eligible for Medicaid or the Children’s Health Insurance Program due to the 25 states and the District of Columbia, which are set to expand Medicaid in 2014. However, the issue brief concludes stating that even if states do not value the benefits of the expansion of Medicaid, perhaps such as those revealed in the substantial numbers of individuals to be covered due to a partial expansion of Medicaid; non-participating states should also consider the federal funding consequences of the decision not to expand Medicaid in each state 

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