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Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems

September 1, 2016
By Brian Blase

In this paper, Brian Blase discusses long-standing problems with the Medicaid program and examine the way the ACA has exacerbated those problems.

Before the Affordable Care Act (ACA), the federal government provided states with an open-ended reimbursement of at least half of each state’s Medicaid expenditures. Because of the federal reimbursement, both state Medicaid spending and federal spending (through the reimbursement) have increased significantly since the program’s inception, substantially crowding out spending on other state priorities, such as education and transportation. The ACA contains an elevated reimbursement rate—equal to 100 percent from 2014 to 2016—for the population made newly eligible by the law. The elevated rate has created an incentive for states to boost expansion enrollment and to create high payment rates for expansion enrollees. Recent data suggest that states have acted on this incentive as both enrollment and per enrollee spending are much higher than expected for the expansion population. If policymakers hope to achieve value through Medicaid and put the program on a sustainable fiscal path, they should consider alternative financing approaches to the open-ended federal reimbursement.