WASHINGTON — The federal government will bear virtually the entire cost of expanding Medicaid under the new health care law, according to a comprehensive new study by the Kaiser Family Foundation that directly rebuts the loud protests of governors warning about its impact on their strapped state budgets.
About half of the increase in health insurance coverage under the new law is expected to come from expanding Medicaid in 2014 to a new nationwide eligibility threshold of 133 percent of the poverty level — $14,400 for a single adult or $29,300 for a family of four. A disproportionate share of the 16 million people expected to enroll in the expanded Medicaid live in states in the South and West that until now have had strict eligibility rules for low-income adults.
Governors of many of those states have predicted fiscal calamity for their budgets, and some have cited the Medicaid expansion in the suits they have filed against the new law, saying it violates their states' rights. But the Kaiser study released Wednesday predicts that the increase in state spending will be relatively small when weighed against the broad expansion of health coverage for their residents and the huge influx of federal dollars to cover most of the cost.
Even the small increase in Medicaid costs may be canceled out by the savings states will enjoy from no longer having to subsidize the uncompensated care of uninsured people who will be on Medicaid, study co-author John Holahan said.
"It's absurd," Holahan, an Urban Institute researcher, said of the dire predictions. "They come out ahead. It's just crazy."
The federal government splits the cost of Medicaid with the states, ranging from a 50-50 split in wealthy states to more than 75 percent in poor states, for a nationwide average of 57 percent, although it has been paying higher rates under the economic stimulus package. Under the new law, the federal government will pick up 100 percent of the cost for all newly eligible people through 2016, a rate that will drop gradually to a 90 percent match in 2020 and beyond.
The federal government will continue to pay its existing match rates for people who would have already been eligible under their states' current rules. But the study's authors predict that there will be few of these people among the new enrollees.
As a result, the overall federal share of the expansion cost will be somewhere between 92 and 95 percent from 2014 through 2019. Although Medicaid enrollment nationally is estimated to increase by 27 percent by 2019, state spending will increase only 1.4 percent, on average, and federal spending will increase by 22 percent, the report finds.