Jul. 14 2015

Economics of Medicaid Expansion

In its second date with the Supreme Court, the Affordable Care Act once again emerged to live another day. The June 25 decision ensured that health plans offered through federal exchanges remained affordable for more than 6 million Americans. Yet the full promise of Obamacare remains unfulfilled in 21 states that reject Medicaid expansion, keeping 5 million Americans uninsured.

These states contend that they can’t afford to expand Medicaid. But a new study by economist Tal Gross, assistant professor of Health Policy and Management at Columbia University’s Mailman School of Public Health, and colleagues at Northwestern finds otherwise with evidence that refusing the federal aid is costly to these states as hospitals there bear the expense of uncompensated care for patients who would otherwise be insured.

Their working paper, posted on June 22 on the website of the National Bureau of Economic Research, revealed that on average hospitals in states not expanding Medicaid will pay out more than $6 billion in uncompensated care every year. By comparison, the Kaiser Family Foundation has estimated that the Affordable Care Act's Medicaid expansion would also cost states about $7.6 billion.

“When we look at the numbers very carefully, what we find is that the state governments are saving money that is roughly equal to the amount of money that the hospitals in each state have to pay to deal with the uninsured,” explains Gross in a new video. “There is a kind of false economy when it comes to expanding Medicaid. It’s not actually cheap to not expand Medicaid.”