Fox's False Warning That Medicaid Expansion Will Bankrupt States

Written by Justin Berrier

Published

Fox Business host David Asman baselessly speculated that health care reform's Medicaid expansion could bankrupt states, a prediction at odds with economic experts who have declared the expansion “a very favorable financial deal for states.”

 The Affordable Care Act allows states to expand Medicaid programs to provide coverage for people whose income falls below 138 percent of the federal poverty level. Initially, the federal government covers the full cost of new enrollees. After 2016, the federal government will continue to pay 90 percent of the program's cost.

On the December 11 edition of Fox News' America's News HQ, Asman warned that new Medicaid enrollees who became eligible for coverage due to the Affordable Care Act's would be covered at  “an extraordinary extra cost to taxpayers.” Asman went so far as to claim the cost could bankrupt states:

ASMAN:  States are spending 30 - 40 percent of their entire budget on Medicaid. And as these more people sign on to Medicaid because of Obamacare, they're going to not only cost us taxpayers more money on the federal level, but they may make some states go bankrupt, because they won't be able to keep up with all those extra Medicaid patients.

Expanding Medicaid would not only not bankrupt states, according to the Center on Budget and Policy Priorities (CBPP), it “will add very little to what states would have spent on Medicaid without health reform.” CBPP found that “Expanding Medicaid is thus a very favorable financial deal for states”:

  • CBO estimates show that the federal government will bear nearly 93 percent of the costs of the Medicaid expansion over its first nine years (2014-2022).  The federal government will pick up 100 percent of the cost of covering people made newly eligible for Medicaid for the first three years (2014-2016) and no less than 90 percent on a permanent basis.
  • The additional cost to the states represents a 2.8 percent increase in what they would have spent on Medicaid from 2014 to 2022 in the absence of health reform, the CBO estimates indicate.
  • This 2.8 percent figure significantly overstates the net impact on state budgets because it does not reflect the savings that state and local governments will realize in other health care spending for the uninsured.  The Urban Institute has estimated that overall state savings in these areas will total between $26 and $52 billion from 2014 through 2019.  The Lewin Group estimates state and local government savings of $101 billion in uncompensated care.

A Kaiser Family Foundation (KFF) report further found that states that expand Medicaid would reduce spending on uncompensated care and increase revenues to hospitals. KFF estimated the uncompensated care savings to be one-third of current costs, which are paid for by state and local governments, leading to "[e]stimated national savings of $18.3 billion over the ten year period." The report also found that the Medicaid expansion would save money through “broader economic effects”:

Some offsets come from: transitioning current Medicaid coverage for specific groups (such as breast and cervical cancer targeted coverage) to “newly eligible” coverage, which has a higher federal match rate; transitioning current Medicaid coverage for individuals with incomes above 138% FPL to coverage in the exchange; and reduced state spending for programs that serve indigent populations (such as state-funded mental health or substance abuse programs). States could also see revenue from broader economic effects of the Medicaid expansion, such as increased jobs, income and state tax revenues at the state level within the health care sector and beyond due to the multiplier effect of spending.

And a post on The Washington Post's Wonkblog highlighted research that showed that “federal Medicaid dollars spur economic activity beyond the initial investment”:

Researchers find that a dollar of Medicaid spending increases spending both in the health-care sector and in other industries.

“For every dollar that a state spends, federal funding filters through the state economies,” says Robin Rudowitz, associate director for the Kaiser Commission on Medicaid and the Uninsured. “That tends to go both into health service vendors as well as other sectors.”

Medicaid acts as a stimulus in two ways. First, increased federal spending on health care can, in tough budget times, free up state dollars for other spending. Medicaid spending can also ripple through the private sector, stimulating increased employment that leads to higher household spending.