Debunking the Myth of a Costless Medicaid Expansion
On August 4, Missouri voters will decide whether the state should become the 38th to expand Medicaid. Proponents of the measure suggest expanding the program would “save” the state money, but a closer analysis suggests the opposite is true: Not only will the program cost the state money, but it will come at the expense of other important budget priorities.
How do proponents create the illusion of savings? Let’s take a look at the numbers.
Today, Missouri’s Medicaid program covers nearly 940,000 people and costs around $11 billion per year. The federal government pays about two dollars for every dollar the state spends, yet the program still consumes nearly 40% of the state’s budget.
If Medicaid were expanded, Missouri’s Department of Social Services projects that more than 285,000 able-bodied adults would enter the program within the first year at a cost of around $2.7 billion. For these new recipients, the federal government’s match would be more generous, at $9 for every dollar Missouri spends instead of the usual $2. But even at that higher match rate, Missouri’s share of the expansion cost would be significant.
To find “savings,” then, expansion advocates rely on several dubious assumptions.
First, federal funding for Medicaid is treated as “free money.” Although Missouri taxpayers are also federal taxpayers, the cost to the federal government is discounted in the “savings” analysis. And with the federal government in a period of historic deficit spending, new Medicaid spending will be debt for our kids and grandkids to pay off.
Second, proponents’ models assume an increase in expansion enrollment that is much lower than what Missouri’s own Medicaid agency expects. We don’t have to look far to see states that have been burned by their pre-expansion estimates of enrollment and associated costs. Illinois, Arkansas, and Louisiana saw initial expansion enrollment dramatically exceed their estimates. If Missouri sees enrollment slightly above the current estimates from the state’s Medicaid agency, the savings vanish even in the pro-expansion models.
Third, advocates forecast the cost for each new enrollee to be less than similar individuals who are already enrolled in the state’s Medicaid program. By underestimating the cost per beneficiary, expansion supporters shave even more costs from their estimates—even though the state knows they’ll cost more.
And fourth, the most dubious of all, expansion advocates assume the number of disabled Missourians on the program will drop by more than 20 percent over the next four years. By enrolling more individuals under the expansion guidelines (where the federal government pays a higher share), supporters assume they can shift some of the state’s existing Medicaid costs to the federal government. The problem is, this type of maneuver is not allowed. Missouri cannot enroll people who are already eligible for Medicaid into the expansion population, so the idea that the number of disabled Missourians in the program could drop by more than 20 percent is simply unrealistic.
We should also keep in mind that when supporters of the proposal say Medicaid Expansion will save Missourians money, they don’t literally mean the program will cost less. The cost of the program grows year after year, even now. What supporters are saying is that they think it will be less expensive to the state than if the state didn’t expand at all.
There are other important unknowns that must be taken into account, including the risk that taking more federal dollars today may put our state in an even worse budgetary bind tomorrow. For instance, if the federal government finally decides to rein in the deficit by reducing its match on the Medicaid expansion population, state taxpayers may be left holding the bag.
Balancing Missouri’s budget around Medicaid is already an incredibly difficult task, especially amidst an economic downturn. Balancing the budget after expansion would be even more painful, because state legislators will have to come up with hundreds of millions of dollars annually to address both traditional Medicaid and the expansion’s costs. These tough decisions are sure to put priorities like education, roads, and public safety funding at serious risk. Suggesting that the state could save money by spending more on Medicaid was always a dubious proposition, but at some point forecasting gimmicks have to give way to common sense.