Ineligible Enrollment in the ACA’s Medicaid Expansion: Evidence, Costs, and Remedies

Introduction

Medicaid is the second-largest government health program in the United States, covering more than 70 million people at an annual cost of approximately $850 billion. Historically, eligibility for Medicaid was generally limited to low-income children and their caregivers, pregnant women, the elderly, and people with disabilities. The Affordable Care Act (ACA) dramatically expanded Medicaid, creating a new eligibility category for non-elderly, able-bodied adults with incomes up to 138 percent of the federal poverty level. To date, 40 states and the District of Columbia have expanded Medicaid, adding roughly 20 million people to the program. In 24 of these states, the expansion group accounts for at least 30 percent of total Medicaid enrollment.¹

By statute, the federal government covers 90 percent of the cost of the expansion group—far more than the approximate 60 percent average federal match states receive for traditional enrollees.² In practice, however, states use a variety of financing gimmicks to decrease their effective share of Medicaid costs and shift more of the burden to federal taxpayers. Provider taxes, for example, allow states to boost federal Medicaid funding by collecting revenues from hospitals and other health care providers, returning much of those funds to providers in the state through higher Medicaid payment rates, and pocketing the federal government’s matching contribution. These practices have grown more common in recent years, fueled by the 90 percent federal match for expansion enrollees. As a recent Paragon Health Institute report explains:

Under the ACA’s 90 percent federal reimbursement percentage, $100 of financing gimmicks yields $900 in federal funds for the state. Under the average state’s 60 percent federal reimbursement for traditional Medicaid recipients, $100 of financing gimmicks yields $150 in federal funds for the state. Money laundering for spending on the expansion population thus has a rate of return six times higher for the average state—and more so for wealthier states that receive lower federal reimbursements for traditional recipients.³

The federal government’s near-total subsidization of the expansion group dramatically weakens states’ incentives to enforce eligibility rules. When ineligible individuals receive benefits through the expansion group, states bear almost none of the cost. On the other hand, ineligible enrollment in Medicaid allows governors and state legislators to boast of reducing the uninsured rate, expanding health coverage for their constituents, and supporting local hospitals and insurers offering Medicaid plans. In essence, state policymakers reap the political benefits of allowing large numbers of ineligible enrollees in Medicaid while federal taxpayers foot the bill.

Differences in federal matching rates also create strong financial motives for states to classify individuals eligible for Medicaid under traditional pathways as expansion enrollees. For example, if the annual cost for a Medicaid enrollee is $10,000, states save $3,000 per year by placing them in the expansion group with a 90 percent federal match, compared to the 60 percent match for the traditional group.⁴ Research suggests that these types of reclassifications may be widespread, affecting millions of enrollees and substantially inflating federal spending on Medicaid expansion.⁵

Several studies have pointed to large-scale ineligible enrollment due to Medicaid expansion. One analysis estimated that in 2017 between 2.23 million and 3.25 million enrollees in Medicaid expansion states had incomes above the eligibility threshold.⁶ Another paper came to similar conclusions, noting that Medicaid expansion had sharply increased enrollment among individuals with incomes above 138 percent of the federal poverty level.⁷

State audits back up these findings, identifying high proportions of ineligible or potentially ineligible Medicaid enrollees, particularly among those classified in the expansion group.⁸ For example, the Department of Health and Human Services (HHS) reviewed eligibility documentation for a random sample of 60 Medicaid beneficiaries Colorado had classified as newly eligible under expansion. Of these, 14 (23 percent) were ineligible, and four (7 percent) may have been ineligible.⁹ An audit of California’s Medicaid rolls revealed that 65 of 125 sampled enrollees (52 percent) were ineligible or potentially ineligible for Medicaid expansion.¹⁰

Eligibility-related improper payments in Medicaid have surged since the program’s expansion under the ACA. A recent analysis calculated that Medicaid issued nearly $1.1 trillion in improper payments from 2015 to 2024—double the officially reported number that largely ignored improper payments caused by eligibility errors.¹¹

Despite these alarming findings, no previous study has attempted to quantitatively assess the full scope of ineligible enrollment under Medicaid expansion. In this policy brief, I calculate that 4.9 million ineligible enrollees were classified in the expansion group in 2019 at an estimated annual federal cost of $23.8 billion. Nationally, this implies that one in three expansion enrollees was ineligible for coverage. Applying these estimates to more recent data, I conclude that ineligible enrollment in 2024 had risen to 6.6 million people at an annual federal cost of $36.9 billion.

Quantifying Ineligible Enrollment

My analysis consists of three steps: (1) Determine the number of individuals eligible for coverage under Medicaid expansion, (2) estimate actual enrollment among eligible individuals by combining the estimates from step 1 with a plausible take-up rate of Medicaid coverage; and (3) calculate ineligible enrollment by comparing estimated enrollment among eligible individuals from step 2 against administrative data on actual enrollment in the expansion group.

I use the U.S. Census Bureau’s American Community Survey (ACS) to estimate the number of individuals eligible for coverage under Medicaid expansion. The ACS is sent to approximately 3.5 million addresses annually, representing 1 percent of the U.S. population. Data quality is high, with response rates typically above 90 percent. The survey collects information about family structure, citizenship status, educational attainment, income, disability, employment, and housing characteristics, among other topics.

To approximate the population eligible for Medicaid expansion, I impose several restrictions on the full ACS sample that are designed to exclude groups that are either generally ineligible for Medicaid (e.g., recent immigrants) or are eligible for Medicaid through alternative pathways (e.g., people with disabilities). Specifically, I drop individuals who meet one or more of the following criteria:

• Under age 19 or over age 64
• Annual family income above 138 percent of the federal poverty level
• Individuals with at least one child living in the home and annual family income below the eligibility threshold for parental Medicaid coverage
• Any Supplemental Security Income
• Any cognitive or physical impairments that interfere with activities of daily living
• Non-citizens who have been in the United States less than five years

After these exclusion criteria are imposed, the remaining observations represent the pool of individuals eligible for coverage under Medicaid expansion. I use ACS sampling weights to calculate the size of this eligible population in each state.

Due to informational gaps and other frictions, not everyone who is eligible for coverage actually enrolls in Medicaid. According to a recent study, the take-up rate for Medicaid expansion was approximately 44 percent in 2014-2015 and 53.8 percent in 2016-2017.¹² These estimates are broadly consistent with previous estimates of Medicaid take-up rates among adults eligible for coverage prior to the ACA, which ranged from about 50 percent to 80 percent, with most estimates falling below 65 percent.¹³ The elimination of the ACA’s individual mandate in 2019 may have further reduced the take-up rate relative to prior years when the mandate was still in effect. Another consideration is that take-up rates likely increased over time as more people became aware of the new eligibility rules; hence, take-up rates measured in the early years of Medicaid expansion may have been somewhat lower than the take-up rates in 2019 and beyond (i.e., the period I examine in this report). Based on these factors, I assume a take-up rate of 70 percent in this analysis.¹⁴

Finally, I compare my estimates of the number of enrolled eligible individuals with administrative data on the actual number of expansion enrollees in each state. This information comes from the Medicaid Budget and Expenditure System (MBES).

Combining these pieces, I estimate ineligible enrollment in each expansion state (indexed by i) using the following formula:

Ineligible Enrollment_i = Actual Enrollment_i — 0.7(Eligible Population_i)

A challenge in generating timely estimates of ineligible enrollment is that ACS and MBES data are released with substantial time lags. The latest ACS data available is from 2023, and MBES data goes up to only mid-2024. Estimating ineligible enrollment for 2023, while feasible from a data standpoint, is substantially affected by the continuous coverage requirement, which prohibited states from conducting eligibility redeterminations during the COVID-19 public health emergency. This restriction was lifted in early 2023, triggering a large-scale unwinding effort across the country. Therefore, estimates of ineligible enrollment in 2023 would not reflect the current state of the program.

To gauge the extent of the problem after the unwinding, I begin by estimating ineligible enrollment for each expansion state in 2019. This establishes a useful baseline and eliminates any possible confounding from the pandemic. Then I apply the 2019 ineligible enrollment rate for each state to June 2024 data (the latest month available) to obtain an estimate of ineligible enrollment since the pandemic. Nearly all states had completed their unwinding by June 2024, so it is unlikely that redeterminations later in the year substantially altered the number of ineligible enrollees in the expansion group.¹⁵

Fiscal Impact of Ineligible Enrollment

Next, I calculate the costs of ineligible enrollment in the expansion group. It is necessary to distinguish between two types of ineligible enrollees: (1) individuals who are not eligible for any Medicaid coverage and (2) individuals who are eligible for Medicaid coverage under traditional rules but have been misclassified into the expansion group. While the first group imposes costs on both the federal government and the states, the second group shifts costs from the states to the federal government due to the higher federal matching rates applicable to expansion enrollees. As a result, ineligible enrollment imposes unambiguous costs on the federal government, but states can achieve budget savings if the share of misclassified enrollees among all ineligible enrollees is sufficiently high.

Unfortunately, there is little reliable data on the respective size of each group. I base my estimates on audits conducted in California¹⁶ and Colorado¹⁷ by the Office of Inspector General at HHS. In each state, investigators calculated the proportion of ineligible expansion enrollees who should have been classified into different eligibility categories. The results revealed that 37.5 percent and 35.7 percent of ineligible enrollees had been misclassified in California and Colorado, respectively. The stability of the estimates between the two states provides some reassurance that similar ratios are plausible in the rest of the country. Drawing on these findings, the analysis that follows assumes that 36 percent of ineligible enrollees are misclassified; the remaining 64 percent are assumed to be ineligible for any Medicaid coverage.

To quantify costs, I use state-level data on per enrollee spending on the expansion group and all Medicaid enrollees from the Medicaid and CHIP Payment and Access Commission (MACPAC). For 2019, I use data for fiscal year (FY) 2019. The latest available data is for FY2022, so in my calculations for 2024, I inflate FY2022 costs to 2024 dollars using the medical care component of the Consumer Price Index (CPI-M) from the Bureau of Labor Statistics.¹⁸

Estimating federal and state costs from individuals ineligible for any Medicaid coverage is straightforward. For each state, I multiply the estimated number of individuals in this category by the per enrollee cost of the expansion group. Based on the statutory federal matching rate, I assign 90-93 percent of these total costs to the federal government and 7-10 percent to the state.¹⁹

The federal and state costs for misclassified individuals are calculated differently, as these do not reflect new costs for the Medicaid program but rather a shifting of costs from states to the federal government. For each state, I calculate the total cost of these enrollees by multiplying the estimated number of misclassified individuals by the per enrollee cost of all Medicaid enrollees.²⁰ To capture the cost shifting to the federal government, I then multiply that product by the difference in federal matching rates between the expansion group (90-93 percent) and traditional Medicaid enrollees (approximately 60 percent, on average). The state costs are simply the federal costs multiplied by -1.

Finally, I obtain the full costs of ineligible enrollment for the federal government and the states by summing the costs of each of the two groups described above.

Scope and Costs of Ineligible Enrollment in the Expansion Group

Table 1 presents the baseline results for 2019. The second column gives the number of enrollees in the expansion group in each state as reported in the MBES. The third column provides my estimate of ineligible enrollment based on the analysis of ACS data and the assumption of a 70 percent take-up rate in the eligible population. Columns 4 and 5 provide estimates of the fiscal impact for the federal government and the states, respectively.

I find evidence of ineligible enrollment in 28 of the 32 states that adopted expansion prior to 2019. When computed as a proportion of the expansion population, estimated ineligible enrollment in 2019 ranged from 0 percent in four states (Indiana, Minnesota, North Dakota, and Ohio) to 57 percent in Oregon and 58 percent in the District of Columbia. The median was 28 percent; the mean was 27 percent. In absolute terms, the largest ineligible populations were found in California (1.7 million), New York (903,000), Oregon (266,000) and Washington (222,000). Nationally, I estimate 4.9 million ineligible expansion enrollees in 2019, or 33 percent of total enrollment in the expansion group that year.

The federal costs of ineligible enrollment were substantial, totaling $23.8 billion in 2019. Strikingly, I find that ineligible enrollment actually benefited states, reducing aggregate state spending by $4.2 billion. This is due to the fact that misclassifications of traditional Medicaid enrollees into the expansion group allowed states to receive much higher federal matching rates. This cost shift more than offset the small increase in state spending due to individuals joining the expansion group who did not qualify for any Medicaid coverage.

Next, I use the estimated rate of ineligible enrollment in each state in 2019 to generate estimates of ineligible enrollment in 2024.²¹ As noted above, this approach obviates the need to rely on pandemic-era data that partly reflects the continuous coverage requirement. The results are depicted in Table 2. Nationally, enrollment in the expansion group was substantially higher in 2024 (20.3 million) than in 2019 (14.7 million), and estimated ineligible enrollment grew from 4.9 million in 2019 to 6.6 million. Partly due to the increase in the number of ineligible enrollees and partly due to rapid growth in per enrollee costs, the federal fiscal impact of ineligible enrollment increased to $36.9 billion in 2024. On the other hand, states collectively saved approximately $4.8 billion from ineligible enrollment in the expansion group in 2024.

Crowding Out the Vulnerable

Allowing millions of ineligible enrollees to receive Medicaid benefits is unfair to taxpayers and contributes to unsustainable federal spending. Yet a narrow fiscal view ignores other negative effects of lax eligibility enforcement. Ineligible enrollees divert resources away from the traditional enrollees—including children, pregnant women, and people with disabilities—for whom Medicaid was originally intended.

Many studies have documented that Medicaid expansion exacerbated health system strain, resulting in longer delays for medical appointments²² and worse access to emergency care.²³ These effects are associated with reduced health spending on low-income children on Medicaid²⁴ and a higher prevalence of depressive symptoms among traditionally eligible adults.²⁵ Addressing ineligible enrollment in the expansion group would help Medicaid deliver better outcomes for the core populations that are increasingly struggling to obtain the care they need.

Policy Recommendations

Although it is unrealistic to expect large social assistance programs to prevent all ineligible enrollment, the scale of the problem under Medicaid expansion calls for immediate policy changes to improve accountability and strengthen states’ incentives to monitor costs and eligibility more effectively. In particular, Congress should consider the following reforms:

1. Reduce the 90 percent federal matching rate for expansion enrollees to each state’s federal matching rate for traditional enrollees.
2. Limit opportunities for states to use financing gimmicks (e.g., provider taxes) to shift Medicaid costs to the federal government.
3. Adopt stricter eligibility review requirements for expansion enrollees.
4. Create meaningful penalties for states with high improper Medicaid payments stemming from eligibility errors.

These changes would help correct the prioritization of Medicaid enrollment growth at the cost of caring for the nation’s most vulnerable citizens. Addressing ineligible enrollment in Medicaid expansion would also reduce federal spending by tens of billions of dollars annually.

Appendix

Footnotes