Why Medicaid expansion is a bad idea for Alabama

As the Legislature heads toward its 2023 regular legislative session, calls for Medicaid expansion are likely to increase. Alabama remains one of 12 states that has not expanded coverage under Obamacare. 

The question is, will state lawmakers continue to resist the pressure to expand Medicaid or go full speed ahead?

For a state that has a Republican supermajority in the legislature, the answer should be a resounding “no” on fully expanding Medicaid. But given the rapid growth of Alabama’s state government over the past few years, the prospect of more federal dollars flowing into the state may be too much for limited government proponents to overcome.

Under the provisions of Obamacare, states that expand Medicaid to adults with incomes at or below 138% of the federal poverty level receive a 90% federal matching rate. The American Rescue Plan Act (ARPA) of 2021 added an additional 5% match rate over two years for states that have not already expanded Medicaid coverage.

According to The Public Affairs Research Council of Alabama (PARCA), Medicaid expansion would cost the state an average of $225 million per year through 2027. PARCA estimates that the additional federal funding, as well as new tax revenues, would allow the state government to realize net savings of more than $1 billion by 2027.

Keep in mind that the state has already expanded coverage for new mothers from 60 days to 12 months. This would not affect them. Future expansion would make all adults who meet the income requirements eligible for Medicaid.

On paper, it may look like a no-brainer. Expand coverage and bring an extra $1 billion into the state in the next five years. In reality though, it’s not that simple.

It’s not that simple

First, there is the issue of costs and savings. If Alabama expands Medicaid, the state government will be putting nearly $250 million more per year into its program by 2027. While more money will be coming back to the state from Washington, most of it will be going into the Medicaid program.

And $250 million will just be the start. These cost estimates are not dynamic. Because of rising healthcare costs and shifting demographics, Medicare is on pace to go insolvent by 2028. Medicaid will face similar cost and enrollment increases due to these factors.

Federal matching rates could also change.

Obamacare originally offered expansion states a 100% match rate. That was later reduced to 90%. The 5% additional match included in ARPA would go away two years after expansion. Without other healthcare reforms, Medicaid costs will continue to rise while federal matching rates could decrease, taking up a larger portion of the state budget each year.

Where does that leave the Department of Corrections, Economic and Community Affairs, judicial system, and other agencies funded by the general fund? If there’s a shortfall, Alabamians will pay for it through higher taxes, despite the fact that the state government is already taking more from you than ever before.

There is also this notion that federal money is somehow free money. It is not. It represents money that the government has already taxed from you, future taxes, and an ever-growing national debt.

In 2008, the federal government spent $201 billion on the Medicaid program. Last year Medicaid spending grew to $521 billion, a 159% increase in 13 years. By 2032, the Congressional Budget Office (CBO) projects that Medicaid spending will hit almost $800 billion annually. CBO estimates the national debt will grow by $18 trillion over the same period.

So, while Alabama’s government may see a “profit” from expanding Medicaid, you, your children, your grandchildren, and future generations will be giving more money to the federal government to pay for it.

The issue of federalism is also at the heart of the Medicaid expansion debate. More money from the federal government means more strings attached. Alabama will have less say over how it runs its Medicaid program.

This has already happened in other expansion states. Under the Trump Administration, the Centers for Medicare and Medicaid Services (CMS) generally approved waivers allowing states to put work requirements in place for able-bodied adults.

At least six expansion states had work requirement waivers approved under Trump which were then withdrawn by CMS under the directives of the Biden Administration. Alabama filed such a waiver for its existing Medicaid program which would have required most parents to work at least 35 hours per week to maintain eligibility. CMS never approved the waiver, and Alabama withdrew the application after Joe Biden became President.

Estimates show that 200,000 to 340,000 people could become eligible for Medicaid if Alabama expands the program. The state would be able to set few requirements for benefit recipients, meaning they would have less incentive to contribute to the state’s workforce.

Why would the state government want to create another disincentive to work when businesses are already struggling to fill positions?

Before Alabama lawmakers bow to the pressures to expand Medicaid, they must carefully consider the long-term impacts on the state budget. More importantly than Alabama’s bottom line, they must consider how it will impact the people they represent.

When the federal government offers something that sounds too good to be true, it probably is.

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