Although the Medicaid expansion and the high initial federal subsidies might seem like too good of a deal to pass up, the eventual high cost of putting this provision in effect, and the innumerable strings attached, would lead to unsustainable growth in Medicaid spending in the coming years, and leave states much worse off.
Fortunately states have a choice about whether to accept this costly new burden.
It is true that at first the federal government will pick up nearly 100 percent of the cost for new enrollees made eligible by the expansion, but within the decade these federal subsidies are reduced to 90 percent, leaving state taxpayers on the hook for 10 percent of the cost—and 10 percent of a very large cost is still a very large cost. Moreover, this assumes that the federal government can be counted on not to further reduce its share of payments in the future. Given the enormous debt facing the federal government, promises of future funding are far from written in stone.
In addition, there are less visible costs tied to this expansion that make it a far less appealing deal than it would appear at first glance. For example, people who were eligible for Medicaid before the Affordable Care Act, but not enrolled, would be drawn to enroll as they try to comply with the individual mandate, something experts refer to as “the woodwork effect.” States would not receive the increased federal match rate for those previously eligible enrollees. The costs of these new enrollees will be covered under the traditional match rate, meaning that states will be liable for as much as 30-45 percent of the increased costs.
As a result, the Medicaid expansion would cost states such as New York as much as $52 billion over 10 years. Taxpayers in states as diverse as Florida and Kansas could be hit with $20 billion in new taxes by 2022.
Fortunately states have a choice about whether to accept this costly new burden. They should pass.