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Big Subsidies Will Push States to Expand Medicaid

Author: Peter R. Orszag
July 11, 2012


Timing. That's the crucial element missing from the rancorous debate, prompted by the U.S. Supreme Court's health-care ruling, over whether states will decide not to expand Medicaid.

Officials in the Obama administration confidently predict that few, if any, states will opt out of the expansion. Opponents say most of them will.

My guess is, both sides are right. Many states seem likely to opt out at first, judging by what their governors have said. Over time, however, assuming the law stays in place, most states will find it hard to resist the substantial subsidies for new enrollees. After all, over the past few decades, states have gradually added optional benefits and expanded the number of beneficiaries beyond the bare minimum required by the federal government. And they have done so in response to much smaller subsidies than offered under the 2010 health-care-reform law.

Before the court's ruling, the Affordable Care Act was projected to reduce the number of uninsured Americans by 30 million to 33 million in 2016 and beyond. More than half of those additional insured -- 16 million to 17 million -- were expected to gain coverage through the enlargement of Medicaid and the Children's Health Insurance Program.

During the first three years, 2014 to 2016, the federal government is to fully subsidize this expansion. Then, the subsidy is scheduled to gradually decrease, but only to 90 percent in 2020 and thereafter. The average federal subsidy for current Medicaid beneficiaries is much lower; it varies from state to state but averages less than 60 percent.

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