This analysis examines the potential costs and savings that health reform may generate for state budgets. It discusses the major expected sources of costs and savings as the new law is implemented and explains why recent estimates of the likely state budgetary impact vary widely. It identifies many opportunities for states to offset costs related to Medicaid expansion, such as the reduced need for payments for uncompensated care as uninsurance declines. The review of state analyses found most reflected potential cost increases but did not account for the full range of potential savings. The actual impact on states will vary depending on current state coverage and on how each state chooses to implement the law.