Kentucky, Don't Roll Back Medicaid

I hope you buy your own health insurance.

Photographer: Win McNamee/Getty Images

Matt Bevin, the newly elected Republican governor of Kentucky, says his state can't afford to keep covering the people who have gained health insurance through Medicaid expansion. If money really is the issue, Bevin may find Kentucky can't afford not to.

Obamacare, Assessed

The Affordable Care Act lets states extend Medicaid coverage to anyone earning up to 138 percent of the poverty level (this year, $33,465 for a family of four), with 90 percent of the cost paid by the federal government. So far 30 states and Washington D.C. have done so, providing health coverage to some 12 million more people.

They've done this at rock-bottom cost, because Medicaid is one of the least expensive ways to provide insurance. For every newly enrolled adult last year, the Medicaid coverage cost $5,517, almost 10 percent less than the average premium for employer-sponsored health insurance.

Opponents of expansion contend that, even so, the states' 10 percent share is too much to bear. Without question, that cost is significant. But Bevin and like-minded Republican officials in other states are wrong to conclude that cutting it will save them money.

That's because looking at the state expense in isolation ignores the economic impact of the other 90 percent. Every dollar the federal government spends on health care in Kentucky is a dollar of revenue for hospitals, doctors and other health-care providers. The money creates jobs, spurs investment, draws skilled workers -- and generates tax revenue.

In 2015, Medicaid expansion in Kentucky is expected to generate an extra 35,000 jobs, $1.3 billion in payroll and $3.5 billion in economic output. That translates into an extra $127 million in new revenue through income, sales and occupational taxes. The estimates are similar for other states.

By contrast, choosing not to expand Medicaid (or, in Kentucky's case, becoming the first state to roll it back) generates added costs, chiefly in treatment for uninsured residents. Hospitals have to spend more on uncompensated care.

That extra spending alone can exceed the amount states save by not expanding Medicaid. According to one study, if states' refusal to expand Medicaid leaves 5.2 million without coverage, those states will save $6.25 billion -- but their hospitals will spend $6.4 billion more.

Of course, the decision on whether to extend health insurance to Americans who can't otherwise afford it should not rest only on budgetary grounds. Having insurance also improves people's quality of life. But financial reasoning alone makes the case for Medicaid expansion. In the past year, Alaska, Montana and Indiana have overcome their reluctance to sign up. Before taking his state in the opposite direction, Bevin should look closer at the problem he's trying to solve. 

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.