Friday, November 28th, 2014

Boycotting Medicaid expansion puts a small dent in U.S deficits

Virginia's refusal to broaden its Medcaid program would save Uncle Sam about $1.5 billion in 2016.
Virginia's refusal to broaden its Medcaid program would save Uncle Sam about $1.5 billion in 2016.

A vote against Medicaid expansion in Virginia is a vote to reduce federal deficits, Del. Bob Marshall, R- Prince William, recently told his colleagues in the House of Delegates.

"The federal deficit is dropping because states have said ‘no’" to expansion, Marshall said on March 25, shortly before the Republican-led House voted for the second time this year not to broaden eligibility in the program to up to 400,000 additional poor and disabled Virginians.

We were curious about Marshall’s statement. When put in the context of the his entire floor speech, it seemed he was pinning the recent drop in deficits entirely on federal savings from states that have rejected expansion. Marshall noted that the deficit as a percentage of the gross domestic product is decreasing and said, "Why is this percentage dropping? Why is this percentage dropping? Mr. Speaker, it’s because the states have rejected Medicaid expansion."

Marshall disputed our interpretation of his remarks, saying that he believes the cautious response to Medicaid expansion is among several reasons for the lowered deficits.

So we decided to keep the Truth-O-Meter parked on this occasion and simply explore the central issue: What impact does the refusal to expand Medicaid by Virginia and other states have on the federal deficit?

The Affordable Care Act, also known as Obamacare, gives states the option of expanding Medicaid eligibility to people earning up to 138 percent of the federal poverty line, about $16,104 in a one-person household and $21,707  in a two-person household. Uncle Sam would pick up the entire tab for the new enrollees during the next three years and pay 90 percent of the cost down the road.

So far, 26 states and the District of Columbia have signed up and 24 states have not. In Virginia, the Republican-led House of Delegates has twice rejected the expansion, which would offer coverage to up to 400,000 poor and disabled residents. House leaders have said they don’t trust the federal government to pay its promised share and that Medicaid is already fraught with waste and must be reformed before it’s broadened.

Obamacare contains a series of federal taxes to pay for its many provisions, including Medicaid expansion. Residents and businesses in each state are subject to the levies, expected to raise $570 billion over the next 10 years, regardless of whether their states enlarge Medicaid. The money gets mixed into the U.S. Treasury; what’s not used for Medicaid is spent elsewhere and reduces the federal government’s need to borrow.

The Kaiser numbers

The federal cost for Medicaid expansion in each state was broken down in a July 2013 report by The Kaiser Family Foundation and the Urban Institute. The study listed 24 states that have chosen to expand Medicaid, 21 that had not and six that were still considering the issue. Since then, three states have agreed to expand Medicaid and three have resisted, including Virginia. We adjusted the columns of states in the report to reflect that change.

The bottom line: The 24 states now refusing to expand Medicaid, if they continue to stand pat, will save the nation $39.3 billion in 2016 -- the only individual year the report considered. Over a 10-year period from 2013 to 2022, they would save the nation $388.1 billion.

Virginia’s decision to hold firm would save the nation $1.5 billion in 2016 and $14.7 billion over the 10-year period.

The CBO numbers

The nonpartisan Congressional Budget Office also offers path for estimating savings, but it’s a little more difficult to traverse. Let’s start with a bit of history.

The ACA -- as approved by the Democratic-controlled Congress and signed into law by President Barack Obama in March 2010 -- required all states to expand Medicaid. That mandate was scrapped in June 2012 when the U.S. Supreme Court ruled that states cannot be compelled to broaden their programs.

Four months prior to the ruling, the CBO issued 10-year projections of the cost of mandatory Medicaid expansion across the nation. It estimated the federal tab would be $48 billion this year, growing to $107 billion in 2018.

Those figures can be compared to projections the CBO released this month on the 10-year costs of the voluntary expansion ordered by the high court.

Unlike Kaiser, the CBO did not conduct a state by state analysis. Instead, it projected that 40 percent of all the people in the nation who financially qualify for expanded Medicaid enrollment will sign up this year -- at a federal cost of $20 billion.

The CBO forecasts that states will continue to opt for expansion and that in 2018, 80 percent of the people in the nation eligible for broadened Medicaid will be signed up -- at a federal cost of $77 billion.

Here are the bottom lines to these numbers:

*For this year, the CBO projected the cost of mandatory expansion at $48 billion and voluntary at $20 billion. The federal savings from the optional system is $28 billion.

*For 2018, the CBO projected the cost of mandatory expansion at $107 billion and voluntary at $77 billion. The federal savings from the optional system would be $30 billion.

These savings need a little perspective. This year, they amount to 5.4 percent of a projected $514 billion deficit. In 2018, they would amount to 4.6 percent of a projected $655 billion deficit.

Back to Virginia

Let’s consider the impact Virginia’s continued refusal to expand Medicaid would have on the federal deficit.

As we mentioned, Kaiser estimates Virginia’s non-participation would save the federal government $1.5 billion in 2016. That comes to three-tenths of 1 percent of the $539 billion national deficit the CBO forecasts for that year.

"Individual states’ decisions have only very modest impact on the entire cost of coverage," said Edwin Park, vice president of health policy at the Center on Budget and Policy Priorities.