Following the Supreme Court’s invalidation of the Patient Protection and Affordable Care Act (ACA) provision that mandated states to expand their Medicaid programs or lose all matching federal funds, states must now choose whether to opt in to the Medicaid expansion in exchange for significant federal assistance or to maintain their Medicaid programs’ status quo and deny access to potentially millions of poor and uninsured constituents.  For those states that joined in the lawsuit to challenge the ACA’s constitutionality, the case’s outcome provided partial vindication of their objections, yet it also now forces those same states to decline federal funding that would significantly increase residents’ healthcare access and pay all of their Medicaid program expansion costs for the first three years in the process.¹  Some states have already decided whether to opt-in or –out of the expansion, while many other states are undecided and scrambling to evaluate the financial considerations involved.²

As modified by the Supreme Court’s ruling, the ACA requires states that elect to participate in the Medicaid expansion to cover adults with incomes up to 133 percent of the Federal Poverty Line, beginning in 2014.³  In return, the federal government will pay 100 percent of the costs of the expansion for three years, gradually scaling its matching funds down to 90 percent by 2020.⁴  Prior to the Supreme Court’s ruling, it was anticipated that the expansion would increase Medicaid eligibility to more than half of the 41.2 million adults who lacked insurance as of 2010.⁵  Now, the Congressional Budget Office (CBO) predicts that 3 million fewer individuals will have insurance as a result of the Medicaid expansion being made optional.⁶  In its report, the CBO estimated that approximately 6 million individuals will not gain insurance coverage under Medicaid, though 3 million of those Americans will likely obtain private insurance through a state exchange.⁷  However, this will result in a higher per-person cost to the federal government than if those individuals were covered by Medicaid, and many others will be left without coverage at all due to ineligibility for Medicaid or private insurance subsidies.⁸

Notwithstanding the need to expand badly needed healthcare access to its citizens, there are a number of financial considerations involved in a state’s decision regarding the Medicaid expansion.  Although the federal government will initially fund the entire expansion, beginning in 2017, that funding will start being scaled back, forcing states to begin paying a percentage of the healthcare expenses for both adults newly-eligible under the expansion and adults currently eligible under states’ existing programs who, even in the absence of the expansion, will enroll in Medicaid as required by the ACA’s individual mandate.⁹  In return, however, states stand to experience significant financial gains should they elect to expand their programs.  For one, the federal government would pay a higher percentage of the healthcare costs incurred by certain currently-eligible adults, and this would be especially noticeable for states in which these adults currently receive less than full-scope Medicaid and the state’s expansion grants all adults the same benefits.¹⁰  By expanding their programs to cover poor and near-poor uninsured adults, states could then cut some of their non-Medicaid costs for these individuals, such as funds expended on mental health services and uncompensated care payments to hospitals.¹¹  In addition to the significant savings produced, a state’s expansion would also generate considerable revenue.   The influx of additional federal Medicaid funds would increase the state’s total economic activity, which would in turn generate revenue in the form of additional state income and sales taxes, as well as insurance premium and provider taxes where applicable.¹²

A study of the Medicaid expansion’s potential impact in Nebraska showed that the estimated cost to the state would range from $140 to $168 million, but in return, the state would receive $2.9 to $3.5 billion from the federal government through 2020.¹³  The federal government’s spending in Nebraska would also generate at minimum of $700 million every year in new economic activity, which could potentially finance more than 10,000 jobs annually through 2020.¹⁴  In contrast, forgoing the expansion would cost Nebraska more than $1 billion in uncompensated care through 2019.¹⁵  In Missouri, the state would spend $431 million over the first five years of the expansion’s implementation, but would receive $8.4 billion in funding from the federal government in return.¹⁶  In 2011, the state spent almost $980 million in uncompensated care, and opting-in to the expansion could lower that amount to $311 million, as well as reduce the $1.8-$3.7 billion the state loses in economic productivity annually as a result of its citizens’ healthcare needs going unmet.¹⁷  Opting-in would mean expanding access to more than 300,000 Missourians, reducing the state’s uninsured rate, stimulating the economy, and easing the burden that $1 billion in uncollected medical bills places on the state’s hospitals each year.¹⁸  Although the expansion promises significant benefits in terms of increased access to healthcare services and additional revenue, the potential benefits and costs of expanding Medicaid will vary from state to state, so an in-depth analysis is required to determining the fiscal implications of any state’s decision.¹⁹

Currently, 27 states remain undecided about whether to expand their Medicaid programs, while 10 states and the District of Columbia have opted-in and another 3 states appear likely to participate.²⁰  Five states have announced they will not expand their Medicaid programs: Florida, Louisiana, Mississippi, South Carolina, and Texas.²¹  Another five states appear unlikely to expand their programs: Iowa, Missouri, Nevada, New Jersey, and Nebraska.²²  Some states have offered specific reasons for their leanings, such as the unwillingness to raise taxes or the purported inability to fund other areas of need, such as education.²³  Other states have simply declined to participate, such as Texas, whose governor stated there was “no intention to implement so-called state exchanges or to expand Medicaid under Obamacare.”²⁴  It is uncertain whether states that have declined to participate will experience any political backlash from their constituents in the November 2012 elections, but with the Medicaid expansion’s 2014 launch rapidly approaching, it is clear that those states that have delayed action must reach a decision in the near-term.