It will cost much more than projected – accounting tricks and overly-optimistic budget projections won’t stop the reality that other states have already experienced. Medicaid expansion is a budget buster and often takes away from other priorities.
Medicaid expansion causes people to shift from private insurance plans to Medicaid – this crowd-out hurts health care providers and lures people into a broken health plan that won’t be there when they need it.
Many people who sign up for Medicaid expansion are already eligible for the program – and the state is on the hook for a higher percentage of their costs.
There is a noticeable “woodwork effect” – that is, when a state makes efforts to enroll the newly eligible population, individuals who were already eligible but hadn’t signed up for Medicaid “come out of the woodwork”. In the initial wave of Obamacare and Medicaid expansion enrollment efforts, states saw a woodwork effect of about 10%, meaning a 10% growth in the traditional Medicaid enrollee population above the anticipated enrollment rate.
This makes a difference for a state because these previously eligible individuals receive a lower match rate in federal funding – meaning more money comes out of the state coffers to pay for these individuals. Fiscal projections often do not account for the increased costs associated with the woodwork effect as these individuals don’t officially “count” as a cost of Medicaid expansion.
The federal government has told state officials it will not allow for the capping of enrollment in the expansion program, nor will it allow states to reduce eligibility below the income levels laid out by Obamacare. There is no “phase-out” or “off ramp”. States like Ohio andArkansas have explored these options, but have been unsuccessful at getting out of Medicaid expansion.
States are always at risk of the federal government finding ways to make them shoulder more of the expansion costs.
While the federal government could alter its FMAP (matching) rate for traditional or expansion Medicaid enrollees, it’s far from the only way it could make states pick up more of the tab.
As previously mentioned, the federal government could become more stringent in enforcing Medicaid enrollee classification at any time – instantly increasing a state’s required share of Medicaid funding.
Yet we consistently see reporting on massive profits for Medicaid Managed Care Organizations – private insurers that provide health plans to Medicaid enrollees. For example, from 2014 to 2016, Anthem made a profit of $549 million from California Medicaid plans. Yet during that time, eight of its twelve Medicaid health plans received low scores for patient care, and the company only spent 77% of the money it received from the state for enrollee coverage on medical care for those enrollees.