Devon Herrick

The Obama administration, health care providers, and advocates for the poor have all been touting the supposed benefits of Medicaid expansion. What is missing from the proponents’ claims of huge windfalls is a thorough discussion of the costs, obstacles, alternatives, and potential pitfalls that make Medicaid expansion a bad deal for states.

The Affordable Care Act (ACA) contains financial incentives designed to strongly encourage states to expand Medicaid eligibility to 138 percent of the federal poverty level. For reference, that’s nearly $16,000 for an individual and $32,500 for a family of four. The ACA’s built-in incentives originally included both a carrot and a stick! On the one hand, the federal government promises to pay most costs for those newly eligible through 2019. Under the original provisions, states failing to expand Medicaid eligibility stood to lose all federal matching funds for those Medicaid enrollees already covered. However, a June 2012 U.S. Supreme Court decision ruled as unconstitutional the provisions denying federal matching funds to states that refuse to expand Medicaid.

This is significant because many of the moderate-income individuals who would qualify for a newly expanded Medicaid program will now qualify for another provision in the health reform law -- generous subsidies to purchase private health insurance.

Moderate-income families earning from 100% to 133% of poverty would be able to buy coverage in the health insurance exchange for premiums that are limited to no more than 2% of income. Those earning slightly more (133% to 138%) will have to pay no more than 3% of income. In other words, individuals and families can obtain private health insurance in the exchange worth up to $5,000 for individual coverage ($15,000 for family coverage) for less than $350 for a single person, and less than $1,000 for a family of four. The actual cost per covered individual will depend on family income and family size. The kicker: families would not be eligible for subsidies if they have access to either Medicaid or employer coverage. In other words, this option is not available in states that expand Medicaid eligibility above the poverty line.

Why is this important? Moderate-income families, doctors and advocates for the poor should care because private insurers pay doctors about double what Medicaid pays for the same service. Low provider reimbursement rates make it more difficult for Medicaid enrollees to find physicians willing to treat them -- limiting their access to care.


Devon Herrick

Devon Herrick is a health economist and a senior fellow at the National Center for Policy Analysis (NPCA).