Medicaid Expansion Leaves Taxpayers on the Hook for Growing Costs

Medicaid was established in 1965 as part of President Lyndon B. Johnson’s Great Society agenda, which expanded sweeping federal welfare programs. As it was originally written, Medicaid, administered by the states but largely paid for by federal and state governments, provided coverage for a limited population of individuals with disabilities and impoverished families.

The so-called Affordable Care Act of 2010 (known by many as Obamacare) subsidized states to expand Medicaid dramatically– including providing eligibility to able bodied, working age adults, earning up to 138% of the federal poverty level. Currently, 40 states have enacted Obamacare’s Medicaid expansion.

Unfortunately, Medicaid expansion has failed to live up to its promises and left hardworking American taxpayers on the hook for growing and unpredictable costs. Incorrect assumptions about the future of federal funds puts expansion states in jeopardy.

States generally assume that Washington D.C. will continue to pay 90% of the Medicaid costs for this expanded population. This level is already down from 100% from 2012 to 2017, then 95% until 2019. Unfortunately for state balance sheets, there is no guarantee that this 90% rate will remain in perpetuity—indeed, it is all but certain that it will not, given the massive amount of debt accrued by Washington, which now totals more than $34.5 trillion. Breaking that gargantuan number down, every taxpayer in the United States would need to pay $266,500 to retire that debt. I don’t know about you, but I don’t have an extra $266,500 sitting around to use.

The nature of Medicaid’s cost sharing between the federal and state governments makes it an obvious opportunity for D.C. to pass off the financial burden to the states. State governments will be left to weather the fiscal consequences when federal funds go away. Essentially, in the words of the great Milton Friedman, states need to realize there is no such thing as a free lunch coming from Washington, DC.

Under the current assumptions regarding federal support, planning for the costs of Medicaid expansion has proved a massive challenge for the states. Reviews of the program’s costs since it began in 2012 have shown both more people signing up and higher costs per person than expected. According to the Kaiser Family Foundation, actual enrollment among the expanded population has been nearly three times the estimates produced by states. On top of that, the per-person costs have been 76% higher than original estimates. Put together, these two factors mean that states attempting to plan expenditures for Medicaid expansion are essentially doing so in the dark—without reliable estimates for how much they will actually have to pay. Worse still, there seems to be no consistent pattern to these cost overruns; Illinois saw enrollments and expenditures respectively 19% and 81% higher above forecasts, while in Washington state, enrollments and expenditures in 2022 were more than three times what was expected.

Even Indiana, a state which was famously an early adopter of Medicaid expansion and which attempted some safeguards to supposedly protect from many of the program’s critical faults, is not exempt from these troubles. The state recently announced that incorrect forecasts led to a $1 billion Medicaid budget shortfall. Hoosiers will now literally pay the price for the unpredictable and unsustainable Medicaid expansion.

ALEC Health and Human Services Task Force Senior Director Brooklyn Roberts recently debunked the most common Medicaid expansion myths. She writes that the program, which supporters claimed would access to healthcare for low-income individuals, often makes it harder for disabled and truly needy recipients to receive care as increased enrollment in expansion states puts more stress on already-strained resources. The expansion also crowds out private insurance. When individuals switch from private plans or even Obamacare plans on exchanges to Medicaid, the market for private options shrinks and those remaining are left with inferior coverage.

Medicaid doesn’t solve the problems faced by rural hospitals either, as supporters claim. Since the government only pays an average of 60% of what private insurance pays, hospitals receive less revenue from those who switch, and their financial troubles only grow worse. A study from the Foundation for Government Accountability found that hospitals in expansion states saw profit margins shrink. Shockingly, 50 hospitals have closed in the states that have expanded Medicaid.

Medicaid expansion has put states and their taxpayers in a perilous fiscal situation – relying on federal funds that will eventually dry up. Meanwhile, this massive entitlement program has added huge amounts to the national debt, reduced quality care options for truly needy patients, and hurt doctors and hospitals across the country.

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