Unbiased Analysis of Today's Healthcare Issues

Estimating Health Reform’s Effect on State Medicaid Expenditure Growth

Written By: Jason Shafrin - Mar• 07•11

Health Reform will of course increase Medicaid spending as more people become eligible for this entitlement.  Yet this is not the only reason Medicaid costs will rise due to Health Reform.  From a working paper by Jagadeesh Gokhale.

Once ObamaCare becomes fully effective in 2014, the cost of newly eligible Medicaid enrollees will be almost fully covered by the federal government through 2019, with federal financial support expected to be extended thereafter.  But ObamaCare provides states with zero additional federal financial support for new enrollees among those eligible for Medicaid under the old laws.  That makes increased state Medicaid costs from higher enrollments by ‘old-eligibles’ virtually certain as they enroll into Medicaid to comply with the mandate to purchase health insurance.

One should note, however, that many of these “old eligibles” will be less costly than those who currently take up Medicaid.  If someone is seriously ill and eligible for Medicaid, the chance they do not take it up is low.  For people who are healthy, however, the transaction costs to enroll in Medicaid are likely high.  Further, if these healthy people do become sick, then they can always sign up for Medicaid.  Thus, although the Medicaid cost per beneficiary will likely decrease as healthier people enroll, overall State cost for covering these additional beneficiaries will certainly rise.

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