Likely Cost of Medicaid Expansion Is Less than One Percent of State Budget Over First Six Years
Through the expansion of Medicaid in 2014, the state will be able to provide health insurance to around 300,000 uninsured Kentuckians at an estimated cost of less than one percent of the state budget over the first six years.
Here’s how. A major way in which the Affordable Care Act expands coverage to the uninsured is by providing Medicaid to adults with incomes up to 138 percent of the federal poverty level (which equals $26,344 for a family of three in 2012). The federal government will pay all of the cost for the first three years of this expansion. Thereafter the federal government’s share phases down to 90 percent of the cost in 2020.
The Kaiser Foundation has estimated that the expansion will cost Kentucky between $515 million and $695 million over the years 2014-2019 depending on how aggressive the state’s enrollment efforts are. Kentucky is expected to collect $9.5 billion in General Fund revenue in 2014. If revenue grows at a rate of 3 percent a year between 2014 and 2019 (it grew 2.7 percent on average over the last three years and 3.7 percent over the last five years), the state will collect over $61 billion in General Fund revenue during the 2014-2019 period.
Using those estimates, the state’s cost for the Medicaid expansion will only be between 0.8 percent and 1.1 percent of the General Fund. But even that estimate is high for two reasons.
First, the state doesn’t only use General Fund money to match federal Medicaid dollars. Kentucky also uses provider fees, and in 2013-2014 they make up 23 percent of the state match. If such fees are also used in the same proportion in the state match for the Medicaid expansion, General Fund dollars for the expansion will comprise only 0.6 percent and 0.9 percent of the General Fund budget.
Second, Kentucky will also save money in uncompensated care costs for the uninsured, since the number of uninsured will be dramatically lower. A significant portion of those costs are now paid by the state, including a portion of the cost of hospital emergency room care and mental health services for the uninsured.
State costs will increase slightly for the years after 2019, when the full 10 percent match for the Medicaid expansion is required. But those costs as a share of Kentucky’s budget will still be very low (and if the state can enact tax reform to put revenue growth on a more sustainable path, the costs will be even less significant). The benefits of the expansion will be huge—a large decrease in the number of Kentuckians who lack health insurance, meaning healthier communities, families and workers.