Another false alarm on the costs of Medicaid expansion

The universe of people obsessed with my Twitter debates with Michael Cannon presumably went ecstatic over our weekend exchange, which centered on Cannon’s short Friday column: “Your Friday afternoon news dump: Obama admin. Admits Medicaid expansion costs more than projected.” Michael and I disagree on everything. He is the Cato Institute firebrand who has apparently dedicated his life to destroying the Affordable Care Act. But he is a smart guy. I often learn from what he writes even as I disagree with it.  Cannon quotes from a recently-released Medicaid actuary report, which bears careful reading.

Michael’s first sentence made my heart sink: “It appears that Medicaid-expansion enrollees are going to cost the states a lot more than they thought.” Given the current knife fight over getting states to expand their Medicaid programs, this would be quite damaging. We know, for for example, that behavioral health costs are significant in a subset of new enrollees. There are also complicated interactions with other state and federal assistance programs. It’s certainly plausible that Medicaid expansion will turn out to be more costly than originally thought.

Because he is such a firebrand happy warrior, I have learned to follow up on his hotlinks to see what else might be going on. So I hunted down the report and ran the numbers. The actuaries did indeed predict higher costs—but almost all in the first year when states wouldn’t have to pay any of these costs. (The higher costs seem to reflect pent-up demand and perhaps more pregnant women than predicted in this particular Medicaid pool. I would like to learn more about what’s happening as states gain experience in the expansion population.)

I also ran the actual numbers from this year and last-year’s reports. The increase in predicted annual* costs per enrollee are shown below, broken down between the states and the federal government. The increased cost to the states averages that Michael warns us about are…. about $5/enrollee per year between 2014 and 2022. If you’re having trouble finding it, its the blue line visually indistinguishable from zero. To Michael’s credit, he’s told me he will modify the post. He certainly should.

2013-14 differences in actuarial prediction

The increased costs to the federal government are shown in red. The difference here is about $881 in the first year as the Medicaid expansion gets rolling, and then plunges in subsequent years, averaging out at about $95/enrollee per year.  That’s something like 2.2% of average non-disabled adult Medicaid costs. Despite the initial upward bump, things are quite manageable. It’s certainly not the sort of bad news one must conceal in a Friday news dump.

The main good news  about the overall Medicaid program is below the fold.

Despite Cannon’s scary headline and a one-year upward-bump in estimated costs, , these are deeply unalarming findings.

The real story in the latest Medicaid actuary report is more hopeful. The entire Medicaid program is experiencing slower cost growth than was expected at the signing of ACA or even a few years ago. Forecasting out to 2022, this makes a huge difference.

Screen Shot 2015-07-11 at 3.43.36 PM

Between last year’s report and this year’s, Medicaid actuaries reduced their estimate of how much the entire Medicaid program will spend seven years from now by 7.9 percent. That’s a trend that reflects a real slowdown over the past several years. These costs savings—assuming current predictions are borne out—swamp anything that might go well or poorly in ACA’s Medicaid expansion.


*I added the word annual there, since commenter Stuart_Levine notes that the chart labels are unclear.

Author: Harold Pollack

Harold Pollack is Helen Ross Professor of Social Service Administration at the University of Chicago. He has served on three expert committees of the National Academies of Science. His recent research appears in such journals as Addiction, Journal of the American Medical Association, and American Journal of Public Health. He writes regularly on HIV prevention, crime and drug policy, health reform, and disability policy for American Prospect,, and other news outlets. His essay, "Lessons from an Emergency Room Nightmare" was selected for the collection The Best American Medical Writing, 2009. He recently participated, with zero critical acclaim, in the University of Chicago's annual Latke-Hamentaschen debate.

6 thoughts on “Another false alarm on the costs of Medicaid expansion”

  1. Harold–You might want to modify the label in the first chart to show that (as I believe) these are annual increases not monthly increases.

  2. Harold's a saint to debate Michael Cannon with calm courtesy. What kind of man devotes his days to depriving millions of his fellow-citizens of health insurance? The description that comes to mind is "unhinged fanatic".

    1. "unhinged fanatic" has the advantage of being shorter than "Cato Institute Staff Member", but the disadvantage of being too generous.

    2. True, but calm courtesy is actually the only way of debating anyone that has any change of changing your opponent's mind. I recently received a notification from The Economist that there was a reply to one of my comments. The first three words were "Your [sic] a moron." Needless to say, I wasn't persuaded of my interlocutor's position (which was, no surprise, innumerate). My reply started out: "Thank you so much for pointing out that I'm a moron. I hadn't realized that before," provided by a one-sentence destruction of his factual assertion and "Have a wonderful day." It felt really, really good, but maybe I'm weird.

      1. The rhetorical as opposed to moral value of courtesy and moderation depends on the chance of persuading your opponent. With the likes of Cannon, this is nil. The debate is addressed to waverers in the audience. If your opponent is arguing in bad faith (as with paid climate-change denialists), scorched-earth tactics like satirical abuse may be right. A lot also depends on your natural style and level of aggression. Harold is a nicer guy than me and is most effective staying so. I fancy my natural zone, like Mark's, is ruder. But we are neither in the Wilkes class.

        Earl of Sandwich, to John Wilkes: "Tell me, Wilkes, do you expect to die on the gallows or of the pox?"
        Wilkes: "That depends, my Lord, on whether I embrace your principles or your mistress."

  3. As usual, I have the obvious question about what part of this number (small as it is) represents cost-shifting from other accounts and diagnostic categories (uncompensated care, nicu admissions usw). Do the actuaries cover that, or are the numbers still too speculative?

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