White Paper

The New Health Care Law’s Effect on State Medicaid Spending: A Study of the Five Most Populous States

Unless it is repealed, the Patient Protection and Affordable Care Act of 2010 promises to increase state government obligations for Medicaid by expanding Medicaid eligibility and introducing an individual health insurance mandate for all U.S. citizens and legal permanent residents. Once PPACA becomes fully effective in 2014, the Medicaid benefits of those who become newly eligible and enroll into Medicaid will be almost fully covered by the federal government through 2019, with federal financial support expected to be extended thereafter. But PPACA provides states with no additional federal financial support for new enrollees among those eligible for Medicaid under the old laws. That makes increased state Medicaid spending from higher enrollments by “old-eligibles” virtually certain as they enroll in Medicaid in response to the individual mandate to purchase health insurance.

This study estimates and compares potential increases in Medicaid expenditures from PPACA by the five most populous states: California, Florida, Illinois, New York, and Texas. State Medicaid spending is projected to increase considerably even without PPACA in California, Florida, and Texas, with smaller increases in Illinois and New York. With PPACA, projected spending is actually reduced for California, while spending increases are positive and large for Florida and Texas. Both Illinois and New York have the potential for considerably higher enrollments and increased expenditures.

My estimates of the states’ PPACA Medicaid burdens are considerably larger than those reported elsewhere, such as in the Kaiser Family Foundation’s study, which appears to have used fixed enrollment rates for new- and old-eligibles based on 2007 data. In this study, the individual mandate’s impact depends on historical enrollment trends — stronger where enrollment rates were low or declining, weaker where they were high and increasing. Thus, methodological differences may underlie the sizable differences in estimates of states’ additional costs from PPACA.

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Jagadeesh Gokhale is a Cato Institute senior fellow and member of the Social Security Advisory Board. He works on U.S. fiscal policy and entitlement reforms. Gokhale is the author of Social Security: A Fresh Look at Reform Alternatives, published in 2010 by the University of Chicago Press.