Medicaid Expansion Under ACA: Analyzing States' Budgets after Implementation

Abstract

This paper explores the effects of the Affordable Care Act (ACA) Medicaid expansions on individual state budgets. Using data from the National State Budget Officers’ State Expenditure Report for the 2014-2018 years, I use a difference-indifference framework to assess the effects of the expansion during the first four years of implementation. I found that Medicaid expansion led to a 16.6 percent increase in state Medicaid spending for expansion states and an 8.9 percent increase in non-expansion states in the first year of implementation. It also created implications in terms of significant reductions in other categories of state spending. Most notably in the first year of implementation, I found a reduction in state budget spending for education, particularly in the realm of higher education, where there was a 6 percent decrease in spending. I also found that, while there was an overall benefit for expansion states in terms of state Medicaid funds, states did not always benefit on an individual basis. Further, there was a significant increase in state Medicaid spending for expansion states one year after the federal government stopped contributing 100 percent of expansion costs, as mandated by the ACA. As state and federal policy makers consider the future of the ACA, especially under a new administration, my findings indicate that some of the original budget concerns expressed by the states are in fact valid in practice. Given the heavy reliance of states on federal funding of Medicaid, any decrease in this support puts other state budgetary categories at risk. Therefore, the original concern for states regarding Medicaid expansion was not entirely political.