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As Federal Medicaid Money Fades, How Are States Funding Expansion?

Many are tapping into tax revenues, making hospitals help, or adding work requirements and premiums to account for their increasing share of the expansion bill. In some, the debate is so heated that it's ended up in court.

Doctor and patient
(TNS/Chicago Tribune/Zbigniew Bzdak)
In his last few months in office, Maine Gov. Paul LePage is taking his yearslong battle against Medicaid expansion -- a central provision of President Obama's signature health care law -- to the state Supreme Court.  

LePage refuses to grant lawmakers' and voters' wishes to make 70,000 more people (adults with incomes at or below 138 percent of the federal poverty level) eligible for Medicaid, the nation's government-run health insurance program. After he vetoed five expansion bills in five years, Medicaid advocates took the issue to voters, who sided with their state legislators.

Still, LePage resists. 

The reason, he says, is money. The federal government will eventually pay only 90 percent of the costs of expanding Medicaid. The rest of the tab is on the state, and LePage says he "would go to jail before I put the state in red ink." 

There is some disagreement about the cost of expansion. The state's Department of Health and Human Services estimates that expansion would cost Maine $63 million for fiscal year 2019, going up to $82 million in 2020. Those numbers, however, don't include the millions in savings expected by the Office of Fiscal and Program Review.

Lawmakers and expansion advocates have suggested ways to pay for expansion -- money from a one-time $35 million tobacco settlement and $128 million of surplus revenue. But LePage has pushed against those ideas, calling the tobacco settlement a "one-time gimmick."

While LePage’s actions are extreme -- he has ignored two courts' rulings ordering him to file expansion paperwork -- other governors are starting to think about how they will fund their portion of Medicaid expansion now that they are picking up a bigger share of the financial responsibility. During the first couple years of Medicaid expansion, the federal government paid 100 percent of the costs. That funding started winding down in 2016 and will drop to 90 percent in 2020. 

“It can’t be avoided, and every state will be looking at this. States have different starting points [for how much it may cost them], but they also have a lot of options,” says Stacey Mazer, a policy analyst for the National Association of State Budget Officers. 

Most of the 33 states that chose to expand use their general fund to make up the difference, but 13 states are either tapping into tax revenues for it, making hospitals help, or cutting other Medicaid costs to make room in the budget.

Arizona hospital fee 
Arkansas work requirements, premiums
California cigarette taxes, hospital fee
Colorado hospital fee
Indiana cigarette taxes, hospital fee, work requirements, premiums
Kentucky work requirements, premiums
Louisiana tax on HMOs
Minnesota provider fee
Montana cigarette taxes*
New Hampshire liquor taxes, work requirements
North Dakota cut provider reimbursement rate
Oregon tax on hospitals and health insurance plans
Virginia  provider fee

*Pending results of a November ballot measure

Faced with losing Medicaid benefits, Oregon voters in January approved a ballot measure that will raise taxes on hospitals and health insurance plans to pay for expansion. California voters similarly approved two ballot initiatives in November 2016 that will fund the state’s share: one that makes a hospital fee permanent, and another that raises cigarette taxes. In November, Montana residents will decide whether to raise taxes on cigarettes to fund expansion. And this month, New Hampshire GOP Gov. Chris Sununu signed a proposal that earmarks 5 percent of liquor sales tax revenue for Medicaid expansion.

"I knew this was going to be the most important challenge the state was going to face from day one," Sununu said during the budget signing ceremony.

New Hampshire is also one of several states seeking to use work requirements to cut Medicaid costs and free up money for expansion. Requiring people to meet employment criteria will limit the number of people eligible for Medicaid in generalArkansas, Kentucky and Indiana have also gotten the green light from the federal government to add work requirements to Medicaid, with Arkansas’ taking effect this month. Kentucky’s, however, are tied up in the courts after a federal judge ruled that they were unconstitutional. Indiana's and New Hampshire's work requirements are supposed to start phasing in next year.

The decision to require Medicaid beneficiaries to work or volunteer is a controversial one, but "it is likely these requirements will save states money," says Ben Sommers, health care economist at Harvard University. "Whether it’s a [legal] means to an end remains to be seen."

A similarly controversial policy -- charging a premium for Medicaid -- is also being used by Kentucky to plug holes. 

Meanwhile, a handful of states -- Louisiana, Maryland, Michigan and West Virginia -- note that expansion has actually created savings in the hundreds of millions of dollars.

In some states, the conversation about expansion costs is just starting. Rhode Island Democratic Gov. Gina Raimondo, for instance, recently proposed putting the funding  burden on Medicaid beneficiaries and adding a co-pay for emergency room visits and generic drugs. It was killed.

While it's smart for states to budget, health policy experts say the cost of expansion will be relatively small in comparison to other Medicaid costs, such as prescription drugs.

“The population that is covered by Medicaid expansion tends to be less expensive than others [on Medicaid and Medicare]. Medicaid spending fluctuates with the economy, and there are other fluctuations beyond just the wind down of federal funds," says Sommers. "It is a real cost, but if you hear a politician say that Medicaid expansion alone is going to bust the budget, then that’s just a political argument."

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*CORRECTION: A previous version of this did not include cigarette taxes and hospital fees as sources of funding for Medicaid expansion in Indiana.

*CORRECTION: A previous version of this mistakenly cited premiums as the funding source for Medicaid expansion in Minnesota.

Mattie covers all things health for Governing.

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