FACT SHEET | March 7, 2011

Republican Myths about the Impact of the Affordable Care Act on State Budgets

In their efforts to repeal and defund the Affordable Care Act, Republicans continue to make false claims about the impact of the law on federal and state budgets, the economy, and our current health care system.  They ignore nonpartisan analysis from the Congressional Budget Office (CBO), which found the cost to be tens of billions of dollars less than their assertion, as well as other independent experts and instead concoct arguments based on flawed assumptions for their own political purposes.  This is the third in a series of DPCC Fact Sheets meant to dispel Republican myths regarding the Affordable Care Act. 

Myth: Medicaid expansion under the Affordable Care Act will bust state budgets.

Reality: Independent, non-partisan analyses suggest that the Affordable Care Act will produce savings and increased revenues for states. 

On March 1, 2011, Republicans released an erroneous report on the costs to states of the Medicaid expansion under the Affordable Care Act.   The DPCC Fact Sheet provides information demonstrating how Republican projections are flawed and provides information on recent Administration efforts to ensure state flexibility during implementation.

I. Background on Medicaid Expansion:

The Affordable Care Act fixes our health insurance system while dramatically increasing access for families to affordable, high-quality coverage.  By 2021, the Affordable Care Act will reduce the number of Americans under age 65 without insurance by about 33 million, meaning that 95 percent of legal residents under age 65 will have health insurance coverage. Approximately 23 million of these newly insured Americans will purchase their health insurance through new health insurance Exchanges.  [CBO, 2/18/2011] 

The remaining newly insured will obtain coverage through Medicaid and the Children’s Health Insurance Program (CHIP).  Under the Affordable Care Act, Medicaid will be expanded to all individuals under age 65 with incomes at or below 133% of the federal poverty level, thus creating a minimum standard eligibility across states.  All Americans over age 65 will continue to be covered by Medicare.   

II. What Percent Do States Actually Pay?

The federal government will cover 100% of the costs to states for the newly eligible population for the first three years, between 2014 and 2016.  The federal government will then cover 95% of all costs costs in 2017, 94% in 2018 and 93% in 2019.  In 2012 and for every year following that, the federal government will pay 90% of all costs for the newly covered Americans.  

States will only pay a tiny fraction of the costs to cover the newly insured population.  According to the CBO, states will pay only eight percent of the total cost of the 18 million people who will be covered by Medicaid and the Children’s Health Insurance Program between 2012 and 2021, as a result of the new law.  CBO further found that the federal government will pay 92 percent of the $734 billion total cost for this coverage.  CBO has previously found that the entire cost of the legislation, including changes to Medicaid, is fully paid for and reduces the deficit by more than one trillion dollars over the next two decades.  [CBO, 2/18/2011] 

III. Republican Accusations on State Medicaid Costs:

Republicans estimated that the expansion will cost state taxpayers an additional $118.4 billion through 2023.  The Republicans’ assertion is about twice the independent Congressional Budget Office estimate of $60 billion through 2021.  The Congressional Budget Office has long been the independent, official scorekeeper of the effects of Congressional legislation. [Republican Congressional Report, 3/1/2011]

What are outside groups saying about the Republicans Accusations?

• The report ignores independent, non-partisan analyses that account for the savings and increased revenues the Affordable Care Act will produce.  These savings could amount to more than $160 billion across all states. [Lewin Group, 12/1/2010]
   
• Republicans projections cherry-pick “worst-case scenarios from various studies that use different time frames and rely on flawed assumptions.” [CBPP, 3/1/2011]

IV. Rationale for Variation of State Medicaid Costs:

While Republicans highlight an inflated estimate regarding the Medicaid expansion cost to states, other independent, non-partisan analysis showsasavings of $106.8 billion. [Lewin Group, 12/1/2010] According to Kaiser, “There are a number of reasons why the estimates of the ACA on states varies so widely. Expanding Medicaid naturally costs more in states where there are more uninsured residents with Medicaid income levels, and the magnitude of the estimates tend to be larger in high-population states. Moreover, the estimates use different methodologies in projecting costs of new enrollment and in including or omitting other costs, savings, or revenues.” [Kaiser, 2/1/2011]

Republican Projections Exclude Health Reform Savings and Revenue to States

• Republicans projections fail to account for reductions in state support for uncompensated care,“ACA-driven increases in coverage will reduce uncompensated care, especially for public hospitals and clinics, along with private safety net institutions. States could share in the associated savings by making changes in the various ways that they support localities and safety net institutions. No state report estimates savings of this type, perhaps in part because of the complexity of funding flows, although two of our five recognize that they will occur… The national estimates from the Lewin Group and from Dorn and Buettgens projected very large savings of this type, up to $100 billion over ten years, enough to generate overall net savings to states under the ACA, although savings will vary by state.” [Kaiser, 2/1/2011]
   
• According toRep.  Henry Waxman (D-Ca.), ranking member of the Energy and Commerce Committee, “All of these estimates overstate state costs because they do not include savings from reductions in states’ payments for uncompensated care. For hospitals alone, the spending for uncompensated care in 2009 was estimated to be $40 billion.” [NJ, 3/1/2010]

• Republican estimates do not account for revenue to states from taxes on insurance premiums. According to Kaiser, “Such revenues will be higher because the extent of insurance coverage will rise under the ACA. Maryland’s revenue estimate found that this would generate over two-thirds of the net savings that the state projected.” [Kaiser, 2/1/2011]

• Republican projections do not account for savings tostate programs. According to Kaiser, “The expansion of coverage and benefits under the ACA will very likely mean that people will seek much less care from existing state and local programs, such as those now funded through public health or mental health departments. States that operate high-risk pools should also see reduced demands and therefore savings in these programs.” [Kaiser, 2/1/2011]

• Republicans fail to account for savings through increased efficiency or enhanced value through initiatives in care management, coordination, and payment methods.According to Kaiser, “For example, the ACA provides a new health home initiative to better coordinate care for individuals with chronic conditions with 90 percent match rate for these services. The ACA also allows states to integrate care for ‘dual eligibles,’ people jointly enrolled in Medicaid and Medicare, and thereby improve value or efficiency… Many different opportunities exist to obtain federal funding such as grants, incentive payments, or demonstration support.” [Kaiser, 2/1/2011]

Republicans Use Studies with Different Timeframes and Flawed Assumptions

• Republicans use worst-case scenarios from studies in order to project high costs to states.According to CBPP, the GOP report, “… doesn’t mention that the Urban analysis produced two sets of estimates for each state — one assuming that the Medicaid participation rate would remain at about its current level, and another assuming that it would rise significantly.  Most credible analysts use the lower estimate, but the GOP report references only the higher one.” [CBPP, 3/1/2011]

• Republicans use studies with flawed assumptions.“The report’s cost estimates for Indiana, Mississippi, and Nebraska come from misleading studies conducted by the consulting firm Milliman, Inc. that rely on flawed assumptions.  One estimate assumes that literally everyone who becomes eligible for Medicaid under health reform will sign up for it on Day 1 — something that has never happened in a means-tested public program.” [CBPP, 3/1/2011]

• Republicans extend the timeframe to manipulate the numbers. The report extends the time frame for the estimate by two years to make the numbers look larger.  This exaggeration misleads the reader by providing an apples to oranges comparison.  The standard time frame used by CBO is 10 years, from 2012 through 2021. This report uses a 12 year time frame, from 2012 through 2023, artificially raising the estimate.

• Republicans rely on studies which include costs not related to the Affordable Care Act.“For example, its Utah estimate comes from a state report that seems to assume enhanced federal funding will run out by 2014, forcing Utah to shoulder a larger portion of the expansion’s costs.  Its Florida estimate, also from a state report, not only assumes that 100 percent of newly eligible individuals will enroll but also includes the cost of raising Medicaid’s payment rates for primary care to Medicare levels after 2014 — a change the health reform law does not require.” [CBPP, 3/1/2011]

V. Other Estimates on State Medicaid Costs:

Republicans contend that the Medicaid expansion under the Affordable Care Act will bust state budgets.  They argue that this expansion will cost state taxpayers billions through 2023, with Texas ($27 billion between 2014-2023), Florida ($12.9 billion between 2014-2023), and California ($19.4 billion between 2018-2023) accounting for the majority of the costs.  

The Kaiser Commission on Medicaid and the Uninsured recently conducted an analysis of these and other estimates. As demonstrated below, the estimates range from a multi-year total cost of $27 billion in Texas to savings of over $106 billion across all states. [Kaiser, 2/1/2011]

 

	State Budget Impacts: Projected Costs or Savings
	State Projections					All States Total
	FL	IN	KS	MD	TX	CBO	CMS	D&B	H&H	Lewin
Multiyear Total (billions)	$5.7	$2.5	-$.2	-$.8	$27	$60	-$33	-$40.9	$21.1	-$106.8
“Notes: Savings appear as negative values. CBO = Congressional Budget Office. CMS = Centers for Medicare and Medicaid Services. D&B = Dorn and Buettgens report. H&H = Holahan and Headen report. Lewin = Lewin Group report. Estimates vary based on state circumstances, projection methods, years included in the estimates, and the elements of costs, savings, and revenues included.”

[Kaiser, 2/1/2011]

VI. Governors agree that expanded Medicaid eligibility and increased flexibility benefit states:

Testifying before the House Ways and Means Committee on the Medicaid expansion, Governor Deval Patrick stated "Federal reform is good for Massachusetts, it has given us an affordable way to extend the promise of coverage to Massachusetts residents." [WP, 3/1/2011]

A number of states, including Connecticut, Minnesota, Washington, and the District of Columbia, have been approved to expand Medicaid eligibility ahead of the 2014 deadline.

• Minnesota Governor Mark Dayton explained the benefits of the changes, “As my first official act as Governor, I’m going to take two important steps. One is to sign an executive order, committing Minnesota to the so-called Early Option for Medicaid…This is a step that benefits all of the people of our state at no, and I repeat no, net cost to the state of Minnesota.”

VII. The Administration is working to ensure that States have the flexibility to secure savings and increase state revenue:

• Under the Affordable Care Act, States may structure their Medicaid programs to more closely resemble the private insurance coverage options available in the Exchanges. States can tailor the benefit packages based on private coverage options available in their States – such as the standard Blue Cross/Blue Shield plan, the State employee health plan, and the largest commercial HMO available in the State. States can go beyond these standards to provide additional benefits but are not required to do so.
  
  • Governor Martin O’Malley argues, “We in the State of Maryland greatly appreciate Secretary Sebelius' understanding of the extraordinary budget pressures all governors now face, and her commitment to working with us collaboratively to reduce costs in our Medicaid programs… I welcome Secretary Sebelius' offer to help us build on our existing efforts here in Maryland to improve quality of care while saving significant Medicaid dollars over the short and long term.”[Office of the Governor, 4/4/2011]

 

Please find additional resources below:

KFF, “State Budgets Under Health Reform”: http://www.kff.org/healthreform/upload/8149_ES.pdf

KFF, “5 Things to Know About Medicaid:” http://www.kff.org/medicaid/8162.cfm

KFF, “Medicaid Enrollment: June 2010:” http://www.kff.org/medicaid/enrollmentreports.cfm

Center for Budget and Policy Priorities: http://www.offthechartsblog.org/republican-report-inflates-state-medicaid-costs-under-health-reform/

DPC