- In every state with available data, Medicaid expansion has overrun the projected costs.
- Overruns exist despite a high federal match – something that will likely not last forever.
- Given North Carolina’s balanced budget requirement, Medicaid expansion would likely necessitate tax increases or spending cuts to supplement cost overruns.
Under our system of federalism, states can look to one another for examples of which policies and programs work well – and which ones miss the mark. When it comes to Medicaid expansion, the writing is on the wall.
Medicaid expansion was written into the Affordable Care Act of 2010 to complement the creation of the insurance exchange. The purpose of the insurance exchange was to provide federal subsidies for households with incomes between 100 and 400 percent of the federal poverty line. Anyone below that threshold was supposed to be covered on Medicaid via a nation-wide expansion.[i] The plan for mandatory expansion went awry when the U.S. Supreme Court ruled that the federal government could not force states to expand their Medicaid programs.
However, many states took the bait and opted into expansion voluntarily, lured by the higher-than-normal federal match.
One advantage to being cautious on policy trends is that North Carolina now has the advantage of looking to the experience of expansion in other states. As of 2019, 33 states have expanded Medicaid and three more approved expansion at the ballot box but have yet to implement their programs.[ii]
In 2014, the last fiscal year before expansion was implemented[iii], Medicaid comprised 24.5 percent of state budgets nationally.[iv] Since expansion, that number has grown to 29.7 percent.[v] Looking at the state level, the reason for the tremendous growth is clear. As of February 2018, every expansion state with available data had exceeded projected costs.[vi] (Note: This analysis excluded states with no projected cost data or that had operated their expansion program for less than a year. See FGA report for details.)
Nationally, expansion has cost states 157 percent more than projected.[vii] The average cost overrun in the states is 92 percent. If that average is applied to North Carolina, the projected $335 million annual state cost would expand into a $643 million annual obligation. This is in addition to the $3.7 billion that North Carolina spends on its current Medicaid program.
Part of the cost overrun is tied to increasing healthcare costs. However, much of the increase is likely caused by the programs within Medicaid exceeding enrollment projections. Actual national enrollment exceeded projections by 110 percent, with some states enrolling three to four times the number of projected participants.[viii]
Within the context of the state budget, which must be balanced, each new dollar in spending must either come from increasing taxes or from cutting spending. Under current expansion plans, the state portion of expenses would be paid for by an increased hospital tax. When contemplating expansion, however, North Carolina must also consider which areas of the current budget it would be willing to sacrifice to help finance Medicaid cost overruns – such as funding for education or public safety. Such a decision will be especially problematic when the current period of economic growth slows.
Carolina Cares, the Republican-sponsored expansion plan, builds in a provision for cost overruns. The program must support itself through provider assessments (hospital tax) or it will be ended. However, once people have started enrolling in the program, will the state have the will to end it? Or will the legislature have to step in and use more taxpayer money to prop up an endeavor that was sold under the guise of being self-supporting?
Up to this point, no state has been able to successfully repeal Medicaid expansion. In November, Montanans voted against a tobacco tax to help sustain the program.[ix] Now, their legislature must find alternative funding or cut the program. While its fate is yet to be determined, the Montana legislature seems committed to keeping the program afloat,[x] despite a clear message from the people that they do not support the program.
Medicaid cost overruns have occurred in the states despite stable federal funding and significant federal subsidies – a condition that is not guaranteed into the future. As mentioned, the federal government incentivized Medicaid expansion by providing a higher matching rate. The federal government funded expansion at 100 percent for the first 2 years, with a gradual decrease to 90 percent in 2020. However, the federal match for the traditional Medicaid program is only 67 percent. The 10 percent state match for North Carolina is an estimated $335 million. If the federal expansion reimbursement rate fell to the traditional rate, the 33 percent state share would be over $1.1 billion per year. Although this is a hypothetical situation, it is well within realm of possibility. With a federal government in $22 trillion of debt, relying on the permanence of the higher federal matching rate is an irresponsible gamble.[xi]
When it comes to Medicaid expansion, the verdict is in: Medicaid expansion has been a huge mistake for state budgets. It is likely that the full consequences are yet to be seen. But even from the beginning, Medicaid expansion is failing. North Carolina policymakers should resist the temptation to jump aboard the sinking ship.
[iii] Medicaid expansion was available to states at the beginning of the calendar year 2014. Since that is in the middle of the state fiscal year 2014, the most recent budgets with no possible expansion were from fiscal year 2013. In fiscal year https://www.kff.org/health-reform/state-indicator/state-activity-around-expanding-medicaid-under-the-affordable-care-act/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
[iv] National Association of State Budget Officers (NASBO. Table 29, page 49. https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/State%20Expenditure%20Report%20Fiscal%202012%202014%20S.pdf