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Medicaid expansion could mean $1 billion gain for Alabama

  • December 10, 2012

UAB health care economists estimate benefits to Medicaid expansion under the PPACA.

If Alabama opts into the expansion of Medicaid under the Patient Protection and Affordable Care Act (PPACA), the federal government’s plan to increase the number of Americans covered by health insurance, the state could gain nearly $1 billion in new tax revenue, according to health care economists David Becker, Ph.D., and Michael Morrisey, Ph.D., at the University of Alabama at Birmingham (UAB) School of Public Health.

Becker and Morrisey examined three different scenarios based on the number of people in the state who would join the Medicaid ranks under the expansion. In the most likely scenario, 300,000 additional Alabamians would be covered under Medicaid. Read the full report.

In short, their analysis points to a win-win scenario for the state and Medicaid-eligible patients.

“Across the first seven years of Medicaid expansion, the net budgetary effect is positive throughout,” Becker said. “In a very real sense, the state makes money while expanding coverage to nearly 300,000 Alabamians.”

Under the PPACA, the federal government will cover 100 percent of health care expenditures from 2014 through 2016. During these first years of the program, Alabama would be responsible for a share of the administrative costs of the expansion. The federal matching rate declines after 2016, falling to 95 percent in 2017, 94 percent in 2018, 93 in 2019 and 90 percent in 2020. As a result, the annual costs to the state increase from $39 million in 2014 to $222 million in 2020 for a total of about $771 million.

However, during those same years, the federal government will spend an additional $11.7 billion more on Medicaid in Alabama.

“While this is a substantial increase in federal spending, it is new income flowing into Alabama,” Becker said. “Moreover, when physicians, hospital employees, pharmacists and other employees in the health care sector receive these new dollars, they spend them on gasoline and groceries and clothes. This second-round spending generates additional economic activity.”

Becker and Morrisey estimate that over the years 2014 to 2020, new spending in Alabama would generate nearly $20 billion in new income, which would generate $1.7 billion in additional tax revenue in state and local governments across the state.

On June 28, 2012, the Supreme Court upheld the individual mandate of the Affordable Care Act. However, the court ruled that the federal government could not withhold Medicaid funds as a penalty to states that would not expand their Medicaid programs. The ruling placed the onus on the states to decide if they would participate in the PPACA by expanding coverage to adults 19 to 64 years old with family incomes up to 138 percent of the federal poverty level. These individuals generally are not eligible for Medicaid currently unless they are disabled.

To take full advantage of the federal matching funds for a Medicaid expansion, states must have their expansion program in place by January 1, 2014.

“Congress and the Supreme Court have made their decisions on the Affordable Care Act,” Becker said. “Whether or not to participate is Alabama’s choice. We wanted to see how participation would affect Alabama and Alabamians.”

“Now,” Morrisey said, “the state will have to decide if it’s going to participate or let the federal dollars for Medicaid expansion go to other states.”

The economists said their goals were to estimate how many people would likely be enrolled, how much the expansion would cost Alabama and to what extent new state tax revenue stemming from the new federal spending might offset some of the costs of the expansion.

“A key to understanding the impact on Alabama is getting a handle on how many people would likely enroll if they were eligible for expanded Medicaid,” Morrisey said.

Under the PPACA, 531,000 people in Alabama would be newly eligible, including people who are currently uninsured and some people with individual insurance or group coverage through an employer. But not everyone will choose to join the program.

“We developed three scenarios,” Morrisey said. “One in which we assumed everyone who was eligible would enroll – the high side estimate. One in which only about half of the uninsured and a quarter of the group insured would enroll – the low side estimate. Our intermediate scenario is the one we think most likely. In it about three-quarters of the uninsured, 60 percent of those low income people with individual coverage and one-quarter of those low-income people with private group coverage would actually enroll. In this intermediate scenario, approximately 309,000 people would enroll in 2014 and this number would decline to about 284,000 by 2020 as the economy improves.”

Using these enrollment projections, the economists then estimated the cost of the Medicaid expansion to the state of Alabama and the economic impact that would result from the Federal government’s increased spending on Medicaid.