Medicaid Expansion

The Affordable Care Act expanded Medicaid eligibility by opening the program to a new category of enrollees—able-bodied, working-age, and generally childless adults. The ACA created a bias in favor of this set of enrollees by providing a much higher federal reimbursement for state expenditures on them. Both program enrollment and spending associated with the expansion have significantly exceeded estimates.

Medicaid Expansion

Key Research

Resisting the Wave of Medicaid Expansion: Why Florida Is Right

December 17, 2023

Brian Blase and Drew Gonshorowski

DeSantis Is Right About Medicaid

December 17, 2023

Brian Blase

Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States

July 24, 2024

Brian Blase and Drew Gonshorowski

Paragon Pics

September 25, 2024

Medicaid is No Longer for the Poor

The week’s Paragon Pic highlights the significant expansion in Medicaid enrollment over the last three decades, demonstrating that it is no longer solely a safety net for categories of just low-income Americans. Enrollment as a percentage of the U.S. population has more than tripled, rising from around 8 percent in the late 1980s to nearly 27% by 2022. Over this period, the poverty rate has remained relatively stable, further illustrating Medicaid’s transformation from a program primarily serving the poor and vulnerable to one that now covers a broad segment of the population.

The most transformative change came with the Affordable Care Act (ACA), which allowed states to expand Medicaid to able-bodied, working-age adults with incomes up to 138% of the federal poverty level. This marked a major shift, as Medicaid eligibility was no longer tied strictly to categorical requirements (such as being a parent, child, pregnant, or having a disability).

Paragon has written extensively on how Medicaid expansion has led to many problems, including a diversion of resources away from traditional Medicaid enrollees, a near quadrupling of Medicaid’s improper payments, and a surge of spending that has significantly contributed to ballooning federal deficits. Paragon also has written about how easy it is for people to qualify for Medicaid long-term care services, as the easy ability to artificially impoverish parents, aunts, and uncles has enabled heirs to protect their inheritances and pass costs to their fellow Americans.

July 31, 2024

Higher Income States Receive More Federal Money per Person in Poverty

Paragon’s new report, Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States, contained two proposals to reform the Medicaid program. The first, and the subject of last week’s Pic, would end the current discrimination that favors able-bodied, working-age enrollees over children, pregnant women, seniors, and the disabled. The second, and the subject of this week’s Paragon Pics, is that wealthy states receive more federal Medicaid money per person in poverty than poorer states.

The intent of the Medicaid financing formula—the federal medical assistance percentage (FMAP)—was to deliver greater federal support in poorer states with the federal government reimbursing a greater share of expenses in states with lower per capita income. Part of the problem is that the FMAP formula has an arbitrary floor on the federal reimbursement for the wealthiest states and the District of Columbia. This week’s first Pic shows what the FMAP would be for these states and D.C. in the absence of the floor.

This week’s second Pic plots federal Medicaid spending per person in poverty with state per capita income. Despite the intent of the FMAP formula to provide greater federal support in poorer states, federal Medicaid spending per person in poverty is positively correlated (r=0.51) with state per capita income. If the formula was working as intended, the correlation would be negative. The reality is that, whether due to economic or political reasons, wealthier states have grown much larger Medicaid programs—with higher eligibility levels and more expansive benefits—and receive far more federal funding per person in poverty than poorer states receive.

Policymakers should base the distribution of federal Medicaid funds on a more accurate measure of state needs and fiscal capacities and not to reward wealthy states with more expansive Medicaid programs.

Although the most important part of Paragon’s Medicaid reform would end the discrimination against the most vulnerable, we also propose to reduce the FMAP floor that benefits wealthy states from 50 percent to 40 percent. The only jurisdiction affected by the 40 percent floor would be the District of Columbia, the U.S. jurisdiction with the highest per capita income. States with the highest per capita incomes, such as California, Connecticut, Massachusetts, and New York, would have FMAPs between 45 and 50 percent, based on their state per capita income. This policy would create greater equity in federal support across the country— reducing the gap in federal funding per person in poverty—although wealthy states would still receive more federal funding per person in poverty after our proposal takes full effect. We propose that the phasedown of the standard FMAP floor would start in 2026 and be complete in 2034.

July 24, 2024

Medicaid Expansion Enrollees Cost Much More Than Expected

In Paragon’s new report, Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States, we review how current policy discriminates against the people that Medicaid was intended to serve and propose an important reform.

The Affordable Care Act’s (ACA) Medicaid expansion added a new category of program recipients—able-bodied, working-age adults—and created a much higher federal reimbursement rate for them than for traditional Medicaid enrollees (low-income children, pregnant women, seniors, and the disabled). This payment differential encouraged spending on expansion enrollees at the expense of traditional Medicaid enrollees.

The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary (OACT) used to produce annual Medicaid actuarial reports show that spending per Medicaid expansion enrollee is much greater than expected when the ACA became law. The Paragon Pic shows the percentage that actual per enrollee federal Medicaid spending for 2014 to 2018 across eligibility groups differed to OACT’s projections in 2013, the year before the Medicaid expansion took effect. As discussed in Paragon’s report, the federal government spends about 20 percent less to provide coverage for the lowest-income exchange enrollees than for Medicaid expansion enrollees, a sign of the major inefficiency of the ACA expansion of Medicaid.

Per enrollee federal spending on expansion enrollees in 2018 exceeded OACT’s projections by 56.0 percent, while per enrollee federal spending on aged and disabled Medicaid enrollees was lower than projections by 25.4 percent and 11.3 percent, respectively. Per capita spending on children was somewhat higher than OACT projected, and spending on non-disabled adults who were eligible for Medicaid prior to the expansion was somewhat lower.

The numbers from OACT include spending in both expansion states and non-expansion states, which blurs the picture, as the reallocation of health care services away from traditional enrollees and toward expansion enrollees would not occur in non-expansion states. In December 2022, the Mercatus Center released a study that separated out expansion states and non-expansion states and assessed spending trends across eligibility categories. Mercatus found strong evidence that resources were diverted away from traditional enrollees to expansion enrollees.

Several recent studies provide evidence of reduced health care access for Medicaid enrollees in expansion states. One found that Medicaid recipients in expansion states significantly delayed medical care because no appointment was available or because wait times were too long. Another found that Medicaid expansion was related to a significant increase in the amount of time it took for ambulances to respond. And a meta-analysis in Inquiry suggested that Medicaid enrollees were one-third less likely to obtain doctor appointments after expansion.

May 15, 2024

The Affordable Care Act’s Medicaid Expansion Caused Improper Payments to Soar

The Affordable Care Act’s Medicaid expansion has resulted in a massive increase in federal Medicaid improper payments, which soared from an estimated $14.4 billion in 2013 to $98.7 billion in 2021 as shown in this week’s Paragon Pic. The primary reason for the increase: millions of people were enrolled in Medicaid without proper eligibility reviews.

A poorly run Medicaid program harms the truly vulnerable by misallocating resources. Because of the ACA, Washington pays a much greater share of expenses for non-disabled, working-age enrollees than traditional Medicaid enrollees like low-income children, pregnant women, seniors, and individuals with disabilities. This ACA expansion elevated rate creates a large incentive for states to enroll people under the expansion criteria.

CMS paused eligibility audits from 2014 to 2017, and because states did not properly review eligibility during that period, improper payment rates were severely understated. Further, as the improper payment rate is an average over three cycles, the 2018 report accounted for only one-third of state eligibility reviews, and the 2019 report accounted for only two-thirds of state eligibility reviews. CMS stopped doing meaningful audits during COVID, so the reports after 2021 do not represent the extent of Medicaid improper payments. The best measure of the improper payment rate is likely still the 2021 report.

The ACA Medicaid expansion caused high improper payments, but the policy response to COVID-19 compounded the problem. The Families First Coronavirus Response Act (FFCRA) in March 2020 increased federal financial support of Medicaid if states did not conduct eligibility reviews or remove ineligible people from the program until the public health emergency ended, which the Biden administration extended to April 2023.

A new Health Affairs article estimates that in March 2022, 30 percent of Medicaid enrollees—or more than 26 million people—reported that they were not enrolled in Medicaid. This is an appalling problem that suggests so many recipients receive no benefit from the program and the government’s enormous expenditures.

According to the estimates, nearly half of this problem was the result of FFCRA’s requirements. This suggests that many people thought they were disenrolled from Medicaid because they gained another plan, most likely a plan from their employer and were just kept on Medicaid because states couldn’t remove people who had secured other coverage.

Issue Experts

Brian Blase

President at Paragon Health Institute

Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and served as its CEO.

Gary Alexander

Director Medicaid and Health Safety Net Reform Initiative at Paragon Health Institute

A nationally recognized health services expert and government reformer, Gary D. Alexander was head of the Medicaid and Health Safety Net Initiative at the Paragon Health Institute from October 2021 to October 2025.

Related Glossary Terms

Affordable Care Act

The Affordable Care Act refers to the Patient Protection and Affordable Care Act law and its subsequent amendments. Passed in 2010, the Affordable Care Act notably affected private health insurance benefit requirements, substantial funding for states that expanded Medicaid to able-bodied working-age adults, and government subsidization of insurance through premium tax credits. It created government exchanges for health insurance and also mandated health insurance coverage for Americans and enforced this mandate with a federal tax penalty on those who were uninsured. This penalty was repealed by a Republican tax bill, ending the fine after the year 2018. The ACA also…

Centers for Medicare & Medicaid Services

The Centers for Medicare & Medicaid Services (CMS) oversees health coverage for more than 160 million Americans through the Medicare and Medicaid programs, the Children’s Health Insurance Program (CHIP), and Affordable Care Act health insurance plans. The oldest of these programs, Medicare and Medicaid, were created in 1965 through the passage of the Social Security Amendments of 1965. While these programs were originally administered through the Social Security Administration, in 1977 the government created the Health Care Financing Administration (HCFA), later renamed the Centers for Medicare & Medicaid Services. CMS’s influence extends from the regulation of Medicare, including administratively set…

Children’s Health Insurance Program

The Children’s Health Insurance Program (CHIP) is a government health insurance program for minors in lower-income households and, in some cases, pregnant women. CHIP health coverage had its origin in the Balanced Budget Act of 1997 and is otherwise known as Title XXI of the Social Security Act. Since its inception, each state has administered CHIP for qualifying children residing in its borders, though states do so within the guidance provided the Centers for Medicare & Medicaid Services. CHIP expenses are jointly paid by federal and state funds and benefit differences exist among individual state CHIPs. Many states have increased…

Federal Medical Assistance Percentage

The Federal Medical Assistance Percentage (FMAP) is the statutory percentage of Medicaid expenditures paid by the federal government. For traditional Medicaid enrollees (low-income pregnant women, children, seniors, and individuals with disabilities), the FMAP is largely a function of state per capita income as states with lower per capita income receive a higher FMAP. No state receives an FMAP below 50 percent. For Medicaid expansion enrollees, the FMAP is equal to 90 percent. The actual percentage of Medicaid expenditures paid by the federal government is substantially higher than the FMAP since states employ numerous accounting gimmicks and financial schemes to minimize…

Medicaid Expansion

Medicaid expansion is the Affordable Care Act’s change to broaden Medicaid program eligibility and increase the number of people who qualify for the program. A major component of this expanded eligibility for state Medicaid programs was eligibility for a new category of people—able-bodied, working-age, and generally childless adults. The ACA created a much higher FMAP for this category—equal to 100 percent from 2014-2016, gradually declining until it reached 90 percent in 2020, where it is scheduled to remain. This FMAP policy incentivized states to expand Medicaid because most of the budgetary costs for the population of expanded enrollees were paid…

Premium Tax Credit

The Premium Tax Credit is a subsidy that reduces the amount of a qualifying household’s premium for the purchase of an ACA exchange plan. Most PTCs are transmitted directly from the U.S. Treasury to an insurance company on an enrollee’s behalf. The amount of the PTC is calculated by subtracting the percentage of monthly household income expected to be paid for insurance from the premium amount of a benchmark plan. The percentage of monthly income to be paid for insurance is determined by the government according to a sliding scale where the lowest earners pay the lowest percentage of income…