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Costs of Medicaid Expansion

When a politician starts talking about free things, you know to check your wallet. Medicaid expansion, in all its varieties, is no different. It would add $4.2 billion to state spending in fiscal year 2020-21, a 27 percent increase over Medicaid without expansion, and 7.4 percent more than total state spending without expansion in Gov. Cooper’s proposed budget. Adding work requirements and cost sharing would have only a marginal impact on the spending increase. Whether it is full Medicaid Expansion or “Expansion Lite,” the new burden on state spending would be significant.

If Medicaid Expansion adds 500,000 people to the Medicaid rolls, taking the total enrollment to 2.6 million (or one in four North Carolinians), the cost would be $8,400 per new enrollee versus the $7,000 per enrollee in the existing program.

Even without expansion, North Carolina has added 300,000 people to its Medicaid program in the past five years. The number of people enrolled soared from 1.7 million in July 2014 to 2.1 million people in June 2019, even as the economy continued to improve. From 2013 to 2018, Medicaid spending climbed from $12.6 billion to $14.6 billion.

Between the transition to managed care and other cost adjustments, the program will cost $15-$16 billion each of the next two years. Medicaid Expansion would add another $4.2 billion (or 27 percent) to that total in fiscal year 2020-21, bringing the total cost to $20 billion.

Gov. Cooper and other supporters of Medicaid Expansion claim this is either free money or simply reclaiming tax dollars North Carolinians have already paid. This could not be further from the truth. The federal portion of Medicaid Expansion, covering 90% of the cost for now, is new spending in Washington, DC, adding to the unsustainable federal deficit. The remaining 10% is covered by a tax on hospitals, which Joe Biden called a scam in 2011, and a tax on Medicaid managed care companies.

Budget accounting has made this hard for a number of people, including North Carolina Health News. The problem can be seen in the governor’s line item for Medicaid Expansion seen below. “Req” means “requirements” or the cost of the program, which totals $6.3 billion over two years. “Rec” means “receipts” or the money used to cover costs outside of the General Fund. This is $6.22 billion over two years and consists of the 90% federal share ($5.67 billion) and the new tax on hospitals to cover $552 million of the state’s $630 million share, leaving $78 million paid through the General Fund appropriations (the “App” line) and the new tax on the prepaid health plans that manage care for Medicaid recipients.

Joseph Coletti / Senior Fellow

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiativ...

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