Stimulus-Enhanced Medicaid Funds Are a Trap for Non-Expansion States

By Jonathan Ingram | April 12, 2021 | 11:10am EDT
A man holds dollar bills. (Photo credit: YURI CORTEZ/AFP via Getty Images)
A man holds dollar bills. (Photo credit: YURI CORTEZ/AFP via Getty Images)

Rahm Emanuel, Obama White House chief of staff, once warned, “never let a crisis go to waste.” In the aftermath of the pandemic—and the economic damage that followed—Democrats are taking Rahm’s advice to heart and using “relief” funds to push through a wish list of policies that disincentivize work, encourage dependency, and threaten to explode state budgets. 

Using Medicaid as a back door for universal health care coverage is at the top of their list. Buried within President Biden’s latest $1.9 trillion stimulus is an attempt to persuade states to expand their Medicaid programs to cover a new class of able-bodied adults—who do not currently qualify for Medicaid—by promising to pay five percent more of those states’ Medicaid costs for the next two years. 

Medicaid program costs are split between states and the federal government. The exact ratio of funding varies by state based on a formula called the Federal Medical Assistance Percentage (FMAP). The federal matching rate ranges from 50 percent in Wyoming to nearly 80 percent in Mississippi

Under Biden’s plan, states that haven’t expanded yet would receive a temporary five percent FMAP boost for expanding Medicaid. But only for two years. After that, states are on their own to figure out how to make ends meet. 

In other words, the Biden administration wants to commit states to billions of dollars in new Medicaid spending, then sneak out the back door after only 24 months. They want to throw the dinner party, but they don’t want to foot the bill. 

This latest expansion attempt builds on the Families First Coronavirus Response Act passed one year ago, in which the federal government offered states a temporary FMAP boost of 6.2 percent for the duration of the pandemic. In exchange for the temporary bonus, states were forced to cover all current and incoming Medicaid enrollees. This includes enrollees who no longer qualify, and even those who were committing outright fraud. Unsurprisingly, the states who took the money and surrendered authority to remove ineligible enrollees are now getting crushed by the price tag of a program that can only get bigger. 

But here’s the thing—for every three dollars spent by states, one dollar already goes to Medicaid. How far is the federal government going to try to bend this program until it breaks? 

Medicaid expansion has exploded budgets nationwide, even before the pandemic. Ohio’s ran $7 billion over budget in its first three and a half years. In Illinois, Medicaid expansion ran more than $4.6 billion over budget in its first three years. Even worse in California, expansion cost taxpayers nearly four times what was expected, running more than $32 billion over budget in just two and a half years.

After seeing the spikes in enrollment and program costs suffered by expansion states in strong economic times, it would defy all reason for the 12 remaining states to voluntarily take on a Medicaid budget crisis during a pandemic recession.

It would also be downright dangerous. Expansion states are seeing people with a true need for Medicaid suffering on waiting lists while fraudsters collect their benefits. Improper Medicaid spending accounted for more than one out of every five dollars spent on Medicaid in 2020. Diverting even more resources away could be deadly for non-expansion states like Florida, which has upward of 72,000 residents with chronic conditions and severe disabilities currently stuck on Medicaid waiting lists.

To the 12 states that have resisted expanding Medicaid: history has already proven you right. Across the board, states that expanded Medicaid are suffering enrollment spikes, soaring costs, and budget crises. They are learning the hard way that “free money” from the federal government always comes at a price. Stay the course. The extra money might seem tempting while revenues are down, but be careful—it’s a trap.

Jonathan Ingram is the vice president of policy and research at the Foundation for Government Accountability.

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