Can states come out ahead under health care reform?

Most states can come out ahead financially under health care reform, according to Stan Dorn, a senior fellow at the Urban Institute in Washington, DC, noting that a December 2010 Urban Institute study found that states would see net budget savings of between $40.6 billion and $131.9 billion from 2014 to 2019 because of the Affordable Care Act (ACA).1

"Increased state Medicaid costs will be outweighed, in all likelihood, by state Medicaid savings," he says. Rejecting the ACA's Medicaid expansion could wind up being self-destructive fiscally for many, if not most, states, adds Mr. Dorn.

"Somewhat higher-income adults will be moved into the exchange," says Mr. Dorn. "Federal Medicaid dollars will substitute for current state and local spending on uncompensated care, mental health services, and social services for low-income parents."

Medicaid is a major source of coverage for children, pregnant women, seniors and people with disabilities in every state, notes Gina E. Wood, deputy director of the Health Policy Institute's Joint Center for Political and Economic Studies in Washington, DC.

"It has a unique role in our health care system, covering a diverse group of beneficiaries, including some of the most frail and vulnerable Americans," she says. "It is the nation's primary payer for long-term care in nursing homes and outside institutions."

Medicaid is a federal/state health partnership, adds Ms. Wood, and "to ignore the expansion requirements would be irresponsible and violate basic human rights of those individuals eligible under the new law."

Legal ramifications

If a state chose not to comply with the Medicaid expansion, says Ms. Wood, the legal ramifications are unclear, giving the pending lawsuits filed in federal courts, and would most likely be decided by the U.S. Supreme Court. "Those states who are complaining should realize that the new law will bring down the charity care needed for those that are now ineligible for Medicaid," she adds.

Between 2014 and 2019, says Ms. Wood, the federal government should pay $443.5 billion dollars, or 95.4% of the total cost of the Medicaid expansion. "The new health care law will result in an additional $15.9 million people receiving Medicaid," she says. "The amount of uninsured Americans should fall by a whopping 11 million people."

The expansion is needed because current income levels are "dismally low already," says Ms. Wood, adding that right now, the Medicaid law leaves dependents without children ineligible for Medicaid in at least 43 out of the 50 states, even if they don't have income.

Effect on budget

Failing to expand Medicaid eligibility won't solve the state budget crisis, adds Ms. Wood. "It would only be a short-term, stopgap measure that would reverse the gains we have made as a nation to cover all Americans living below 133% of the federal poverty level," she says.

That means that every American living alone who makes $14,000 in 2010 will be required to get Medicaid, says Ms. Wood, adding that states already have substantial flexibility to design benefits, service delivery systems, and payment strategies, without a federal waiver.

In 2008, roughly 40% of Medicaid spending — $100 billion — was spent on optional benefits for all enrollees, with nearly 60% of this spending for long-term care services, notes Ms. Wood.

"Efforts are under way to step up federal support to help identify cost drivers in the Medicaid program," she says. "New tools and resources will be provided to achieve both short-term savings and longer-term sustainability."

Contact Mr. Dorn at (202) 261-5561 or and Ms. Wood at (202) 789-3517 or


1. Dorn S, Buettgens M. Net effects of the Affordable Care Act on state budgets. The Urban Institute, Washington, DC, December 2010.