Medicaid Expansion 3-Point Bulletin

What is Medicaid expansion and why does it matter?

The Affordable Care Act greatly expanded the Medicaid program.  Under the law, beginning in 2014, anyone 133 percent above the federal poverty line would qualify for Medicaid.  This differs from the pre-ACA Medicaid program in that it is only conditioned on income level.  The Medicaid change envisioned by ACA is so substantial that if all states adopted this new eligibility threshold, 17 million previously uninsured would gain coverage.  In contrast, the traditional Medicaid program required, not only qualifying as low-income, but also, being a child, parent of a child, senior, or being pregnant or disabled.  The Affordable Care Act eliminated these additional requirements for Medicaid.  However, the Supreme Court ruling limited the effects of ACA’s Medicaid expansion.

What is the significance of the Supreme Court ruling for Medicaid?

Federal matching funds make up a significant portion of state Medicaid funding – at least 50% in every state.  Because states rely on this funding to provide care to Medicaid beneficiaries, the penalty under ACA (pre-Supreme Court decision) that states would lose federal Medicaid funding altogether was severe.  A loss of federal funds was, in reality, not an option for most of the states.  By taking away the penalty to states that fail to expand Medicaid rolls, the Supreme Court effectively made the Medicaid expansion requirement optional.  The Supreme Court said conditioning prior Medicaid funding on these expansions was an unconstitutional and impermissible infringement of states’ rights.  As a result of the ruling, there is no penalty to states and states can choose whether to expand or not.

What are states thinking?

States have incentive to expand their Medicaid programs because the federal government will cover the full cost of additional beneficiaries for three years.  In 2017, the federal government will pay 95%, in 2018, 94%, in 2019, 93%, and by 2020 and for subsequent years the federal government will pay 90% of the costs of covering these individuals.  Some states worry that having to pay even only 10% for all new beneficiaries will be too expensive given tight state budgets.  Still other states worry that the federal government will have to further ratchet back the percentage, leaving states with the bill.  There is no deadline for the Medicaid decision.  Because the federal assistance is most generous in the first few years though, states have an incentive to expand early rather than later.  CMS has said that states may expand at first and then change course later, however, it would be very difficult to take away these new entitlements once they have been given.


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For many businesses, nothing seems more remote than the maneuvering of Beltway insiders. But what happens in Washington and in state and local government is critically important to your company and your industry. With government more involved in business than at any time since the 1930s, organizations that can negotiate the government labyrinth of politics, policy, and process will come out on top.
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