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CBO Says Medicaid Expansion Would Cost $500 Billion

By Philip Klein on 7.8.09 @ 11:20AM

Remember last week when the media touted a new cost estimate by the Congressional Budget Office suggesting that Democrats on the Senate Health, Education, Labor and Pensions Committee had found a magic want enabling them to cover 97 percent of the uninsured for $600 billion? Well, we now know that the cost is more like $1.1 trillion, and likely higher.

As I cautioned when the CBO numbers came out last week, the $600 billion estimate did not include the price of massively expanding Medicaid, a costly provision of all of the various Democratic health care proposals. But now the CBO released an additional estimate anticipating that legislation would add 15 million to 20 million more people to the Medicaid rolls. It found that the cost of such an expansion "could vary in a broad range around $500 billion over 10 years." But the catch is that such an estimate is of the anticipated federal cost of the Medicaid expansion. In actuality, the federal government typically pays around 57 percent of the cost of Medicaid, while the remaining 43 percent is picked up by the states. So what's the full cost of a Medicaid expansion at both the federal and state level?

Sen. Lamar Alexander, a former governor of Tennessee who has been concerned with the burden that a Medicaid expansion could put on cash-strapped state governments, posed this question to CBO director Douglas Emendorf at a Senate hearing this morning. Elmendorf explained that part of the price tag depends on how broad the expansion of Medicaid will be. Additionally, some proposals anticipate the federal government covering the full cost of the Medicaid expansion, while others anticipate turning the increased cost over to the states after five or so years. Elmendorf said that the $500 billion figure was a back of the envelope calculation based more or less on the midpoint of a number of possible scenarios (i.e., if more cost is shifted to the states, the lower the federal number, and the more cost that is covered by the federal government, the higher the number). But while the CBO is only tasked with determining how much a piece of legislation will cost the federal government, to taxpayers, it's arbitrary as to whether the burden is being carried by Washington or their state governments. This is a longer way of stating that we don't yet know the combined state and federal cost of expanding Medicaid, we can assume that it will likely be higher than $500 billion. And this is only one provision of health care legislation, the full cost of which will easily exceed $1 trillion as currently envisioned.