What Is the Impact of the Patient Protection and Affordable Care Act (PPACA) on the States?

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Posted to Web: June 23, 2010
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The Patient Protection and Affordable Care Act (PPACA) will have substantial effects on state governments. There will be a dramatic expansion of Medicaid enrollment; however, in most cases the federal government will pay a very high share of the costs associated with the expansion. States who offer more limited coverage today will see the greatest benefits. The legislation should also reduce many costs that states now bear for caring for the uninsured. They could also save by no longer covering Medicaid beneficiaries with incomes above 133 percent of the federal poverty line (FPL); states are also likely to save on current coverage of children, and could see lower expenditures for elderly and disabled. States will also benefit from income-related subsidies that provide federal support to individuals with low and moderate incomes.

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The main components of PPACA that will affect state governments will not be implemented until 2014, when Medicaid coverage will substantially expand in most states. Federal funds will pay most of the resulting new costs, but there will be modest increases in state Medicaid spending on adults with incomes up to 133 percent of the federal poverty level (FPL). These state cost increases range from $21.1 billion to $43.2 billion over the 2014-2019 period, with the difference depending on the extent of beneficiary participation. These represent increases in state spending of 1.4 to 2.9 percent relative to what states would spend on such adults in the absence of reform. States should be able to manage, since the economy almost certainly will be substantially stronger by 2014 and PPACA will generate new federal payments in other areas that will significantly exceed the rise in state Medicaid spending on low-income adults. Taking into account the provisions that affect children and Medicaid beneficiaries above 133 percent of FPL, the CMS Actuary projects that, through 2019, PPACA will cut net state spending on Medicaid and the Children’s Health Insurance Program (CHIP) by $33 billion. An additional $70 billion or more in state savings could result from shifting state and locally funded uncompensated care into federally matched Medicaid, as explained below. The impact of PPACA on the states is described below:

State Medicaid Costs for Newly Eligible Adults

Beginning in 2014, Medicaid will cover adults with incomes up to 133 percent of FPL. For the newly eligible, the federal government will pay 100 percent of health care costs between 2014 and 2016. In 2017, this percentage will drop to 95 percent, and continue to decline until 2010—falling to 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and thereafter. The states with the largest number of new eligibles will be those with limited coverage today, generally in the South and West. Medicaid enrollment increases will be the greatest in these states, as will increases in state and federal spending. The federal government will bear the overwhelming share of new spending on the new eligibles.

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