The Federal Financial Commitment to the Medicaid Expansion Stands

January 31, 2014 at 1:41 pm

Health reform’s Medicaid expansion is a great deal for states.  The federal government will finance nearly all of its costs, picking up 100 percent of expansion costs for the first three years (2014-2016) and no less than 90 percent on a permanent basis.  In fact, as a recent analysis from Virginia shows, the Medicaid expansion can actually save states money.

Some policymakers who oppose health reform in states that have not yet taken up the expansion, however, continue to claim that the federal government will renege on its financial commitment to the expansion.  They argue that states shouldn’t adopt the expansion because federal deficit reduction efforts will inevitably lead to requiring states to pay for a greater share of the expansion costs.  There is no evidence to support this claim.

Federal spending on both Medicaid and Medicare has been growing much slower in recent years than previously projected.  The Congressional Budget Office (CBO) expects the federal government to spend $1.2 trillion less on Medicare and Medicaid between 2010 and 2020 than CBO estimated in March 2010 (see chart).  We have similarly found that projected federal Medicaid spending will be $311 billion — or 9.2 percent — lower between 2010 and 2020 than what CBO previously projected even after excluding the effects of the Medicaid expansion (such as the Supreme Court decision that made the expansion a state option, which had the effect of lowering federal spending).

As a result, pressures to cut Medicaid and shift costs to states as a strategy to cut the deficit have dissipated.  For example, policymakers didn’t seriously target Medicaid as a source of savings in crafting either of the last two major federal budget agreements: the 2012 “fiscal cliff” budget deal and the December 2013 budget deal between Senate Budget Chair Patty Murray and House Budget Chair Paul Ryan that funded the government for the rest of the fiscal year.

In addition, as we have previously pointed out, the Obama Administration has said that it will oppose any cost-shifts to states that would deter states from taking up the Medicaid expansion.  That’s why it dropped from its own budget last year two Medicaid proposals it once supported that would shift costs to states.  As National Economic Council Director Gene Sperling stated last January, states should expand Medicaid “with the understanding that the rug will not be pulled out from underneath them” and that “[w]e are not willing to accept even the Medicaid savings that we had once put on the table … Medicaid savings, Medicaid cuts, for this administration, are not on the table.”

In fact, as we have noted, the only federal policymakers now pushing for major cuts to Medicaid that would significantly shift costs to states — like converting Medicaid to a block grant or setting per capita caps on federal Medicaid funding — are congressional health reform opponents who would gladly undermine a key element of the Affordable Care Act.  But their proposals face intense opposition and have no prospect of becoming law.

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More About Edwin Park

Edwin Park

Park is Vice President for Health Policy at the Center on Budget and Policy Priorities, where he focuses on Medicaid, the Children’s Health Insurance Program, and issues related to federal health reform.

Full bio | Blog Archive | Research archive at CBPP.org

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