States could face budgetary squeeze as Medicaid expansion funding drops off

Medicaid on paper and a stethoscope
Several recent studies have highlighted the positives of Medicaid expansion without hurting state budgets. But that could change.(Getty/designer491)

States that have expanded Medicaid have seen strong gains in coverage and better access to care without having to sacrifice other social programs, new research has found.

But that may not last long.

An analysis by the Kaiser Family Foundation found the 33 states that expanded their Medicaid program to 133% of the poverty line saw a 7.4% decrease in the uninsured rate from 2013 to 2017 compared to a 2.7% drop to those that didn't.

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The states' economies also did better due to the expanded coverage. Expansion states saw both a decrease in uncompensated care costs and state-funded health programs, like behavioral health and corrections, as well as an increase in gross domestic product and jobs. 

Another recent study by Joelle Abramowitz, an economist with the University of Michigan Institute for Social Research, found that expansion has reduced out-of-pocket medical costs.

Opponents of expansion argue that state spending on the program will lead to cuts in other public sectors, like education and infrastructure, but KFF's research has shown that is not the case, at least not yet. 

RELATED: Is Maine's Medicaid lawsuit a harbinger for other anti-expansion governors?

"National research found that there were no significant increases in spending from state funds as a result of Medicaid expansion and no significant reductions in state spending on education, transportation, or other state programs as a result of expansion," the analysis said.

Future cuts

Kaiser's results only look at results from 2014 to 2016, however, when costs of expansion were completely covered by the federal government. But that level of support is slowly shifting. Federal funding for the program fell to 95% in 2017, 94% in 2018 and will fall to 93% next year. It's final drop is to 90% in 2020 and beyond.

The resulting increase in state spending for the program might lead to additional budget cuts, possibly in the Medicaid program itself. 

"States' cost for expansion increase each starting last year; its possible that over time, states' spending on Medicaid might see some changes," Megan Olsen, senior manager at Avalere Health, told FierceHealthcare.

RELATED: HHS rejects Kansas' request for Medicaid lifetime limits

Additionally, a report published this week by the Urban Institute found that if the remaining 19 states expanded their programs, state budgets would increase by $2.6 billion and the federal budget by $34.4 billion. The budget increases would, however, be cushioned by an $8 billion decrease in demand for uncompensated care.

Some expansion states have already attempted to offset Medicaid spending.

Kentucky, Arkansas and Indiana have been approved to initiate work requirements, which are intended to lower participation in the program and offset costs. Such requirements could become more popular if proven to control state costs. 

And other social programs, like education and transportation, could be on the hook for additional cuts, going against the trend reported by KFF. 

"As states take on more of the cost, it will force states to make decisions," Olsen added. 

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