Medicaid Expansion Under the Affordable Care Act

February 7, 2017

This feature is part of an ongoing RSF blog series, Work in Progress, which highlights some of the research of our current class of Visiting Scholars.

The Affordable Care Act (ACA), implemented in 2010 by the Obama administration, was the most significant health care reform in the U.S. in decades. Among other measures, the bill sought to increase access to health insurance, enhance the quality of care, and reduce health care spending over the long term. The ACA has been controversial since its conception, and Republicans have recently announced plans to repeal the bill following their sweep of Congress during the November 2016 elections. According to U.S. House Speaker Paul Ryan, “Obamacare has failed.”

But is there strong evidence that the ACA failed to meet its goals? At RSF, Visiting Scholar Helen Levy (University of Michigan) is studying some of the economic consequences of health care reform by comparing outcomes in states that expanded Medicaid under the Affordable Care Act with outcomes in those that did not. In a new interview with the foundation, Levy discussed provisions of the Medicaid expansions under the ACA, the effects of the Medicaid expansions on low-income populations, and what lies in store for health care in the U.S. with the fate of the ACA uncertain.

Q. Among other goals, the Affordable Care Act (ACA) sought to increase health care coverage among the uninsured population and expand eligibility for Medicaid. Can you talk a little about how the federal government incentivized states to adopt Medicaid expansions following the passage of the ACA?  To what extent were these efforts successful? 

Levy: The law was originally written so that states faced both a carrot and a stick to get them to expand Medicaid eligibility. The stick was the threat that if a state didn’t expand Medicaid, the federal government would withhold funding for the state’s existing Medicaid population: that is, the millions of low-income children and their families who were already covered by Medicaid. On average, before the ACA, the federal government paid 57% of the cost of Medicaid for this population, with states paying the rest. The Supreme Court ruled in June 2012 that this threat to withhold funding (the stick) was coercive, so that meant only the carrot was left to induce states to expand Medicaid. The carrot in this case was the promise that the federal government would pay 100% of the cost of the expansion population from 2014 through 2016, 95% in 2017, and then a little bit less each year until the federal share hit 90% and stayed there in 2020 and later.

The carrot alone has been fairly successful; 32 states (including DC) have expanded Medicaid to date. These states contain nearly two-thirds of the non-elderly adult population of the US.

Q. What can we learn about the effects of the ACA by studying populations in states that adopted the Medicaid expansions, compared to those that did not? Which groups did the expansions affect the most? To what extent did the Medicaid expansions impact states’ economies and labor markets? 

We can learn a lot about the impact of Medicaid by comparing the states that did and did not expand their programs in 2014. The states that expanded Medicaid had bigger gains in coverage than those that did not, although the non-expansion states had somewhat larger gains in non-group coverage (the kind of coverage you would get through the health insurance exchange) which somewhat offset the fact that the expansion states had large gains in Medicaid. The most interesting difference in terms of coverage may not be so much the total gain in coverage as who is gaining it. In expansion states, we see larger gains among very low-income households that we don’t see in non-expansion states. So Medicaid expansion flattens the income gradient in coverage in a way that private coverage expansion alone does not.

In terms of economic effects, for an individual state the impact of expanding Medicaid can be very positive for the state’s economy. It can save the state money by shifting some spending to the federal government; it also simply provides a boost in money coming into the state, and some of that feeds back into the state’s coffers through taxes on income and sales. The specifics of it will depend on each state’s budget and tax system, but an analysis we did in Michigan showed that Medicaid expansion was a net gain for the state’s budget, even when the state has to pay 10% of the direct cost of the expansion in 2020 and later.

As for labor markets, there is very little evidence so far that Medicaid expansion or the provisions of the ACA more generally have led people to work less (quitting jobs, shifting to part-time, or retiring) in a way that some people had feared.

Q. The GOP-controlled Congress, backed by the Trump administration, has stated their intention to dismantle the ACA. What kind of health care system is likely to replace it, and how will Medicaid coverage in particular change?

No one knows. The difficulty the Republicans face in replacing the ACA, if that is what they want to do, is that the private coverage expansion under the ACA was already built on conservative principles that embrace competition. So that does not leave them a lot of room to implement new policies that maintain the coverage gains the ACA has achieved. It would have been much easier for them if the ACA had included something like, let’s say, a public option for coverage. Then the Republicans could have killed the public option, claimed a symbolic conservative victory, and moved on. But the ACA didn’t have a public option. One common thread in many Republican proposals is redesigning the tax subsidies that people get for coverage. Several of the proposals mention capping the tax exclusion of employer-paid health insurance premiums, or replacing the exclusion with a credit. I would support that; the exclusion of employer-paid health insurance premiums is very expensive and highly regressive.

In terms of Medicaid, there has been some discussion of Medicaid block grants. It's very difficult to speculate about block grants since there are no details, and their impact would depend entirely on those details. If they are anything like block grants to states under welfare reform in 1996, though, what it would mean is fewer resources for poor people.

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