Does Medicaid Expansion Really Help Lower Premiums?

On the surface, there’s not much of a link between Medicaid expansion and a state’s insurance exchange premiums. Yet a recent government analysis discovered that premiums were roughly 7 percent lower in states that expanded Medicaid compared with those that didn’t.


The Department of Health and Human Services analysis examined 2015 premium and enrollment data and found that exchange plans in states that expanded Medicaid had more higher-income enrollees than the nonexpansion states. Higher-income individuals tend to use fewer health-care services, which leads to lower premiums.


I spoke with Day Pitney’s Eric Fader, who told me that the link between expansion and lowered premiums made sense. Fader said that when a state expands its Medicaid program, it removes lower-income individuals from the pool using exchange plans. Because these individuals tend to use more health-care services, their removal to Medicaid lowers per-capita health-care spending and in turn premiums, Fader said.


However, Fader said exchange plan insurers could turn the reduced health-care spending into higher profits rather than lower premiums in the coming years. Several insurers, including Aetna and UnitedHealth Group, have announced plans to stop selling exchange plans in some states. “With the threatened withdrawal of several larger insurers from the marketplaces, it seems to me that it would be difficult for a state to begrudge a little extra profit for the intrepid companies that stick it out,” Fader said.  

In addition to the lower premiums, HHS Secretary Sylvia Mathews Burwell said Medicaid expansion led to better health benefits for individuals and gave states an economic boost. The Affordable Care Act originally called for all states to automatically expand their Medicaid programs, but a subsequent Supreme Court ruling made the expansion voluntary. So far, 31 states and the District of Columbia have expanded their Medicaid programs.


Stay on top of new developments in health law and regulation with a free trial to the Health Law Resource Center. Learn more about Bloomberg Law and sign up for a free trial.