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Expand Medicaid and Obamacare will cost less, federal government says

Elderly man speaks to an insurance agent on Affordable Care Act plans.
Joe Raedle | Getty Images
Elderly man speaks to an insurance agent on Affordable Care Act plans.

Want to cut Obamacare prices in your state? Expand Medicaid.

States that allow nearly all poor adults to enroll in their Medicaid health coverage programs saw prices on Obamacare private insurance marketplaces about 7 percent lower than states that haven't expanded Medicaid eligibility, the federal government said Thursday.

The findings reflect the fact that poorer people tend to be less healthy than people with higher incomes, who make up the lion's share of Obamacare enrollees in expansion states.

Private health plans can charge lower premiums if their pool of customers use fewer health services. But poorer people are much more likely to enroll in such plans in non-expansion states because they are barred from Medicaid.

So far, 31 states and the District of Columbia have expanded Medicaid to cover nearly all adults who earn up to 138 percent of the federal poverty level, or $16,394 for a single person. An estimated 4 million people in the other 19 states would gain Medicaid coverage if they expanded eligibility.

Thursday's announcement, based on a new analysis of 2015 HealthCare.gov premiums, comes as news headlines highlight the fact that Obamacare premiums are on track to increase more sharply in 2017 than in prior years.

"Today's report identifies yet another group that would gain if states chose to expand Medicaid: Marketplace consumers, who would see lower premiums," said Health and Human Services Department Secretary Sylvia Burwell.

"These gains are on top of the direct benefits of expansion for millions of Americans who would gain coverage and on top of the economic benefits for states," said Burwell, whose department conducted the analysis, and which oversees Obamacare.

The analysis underscores how tools implemented by the Affordable Care Act interact with one another.

The ACA, popularly known as Obamacare, authorized the creation of government-run marketplaces, or exchanges, to sell private individual health insurance plans. People who earn between 100 percent and 400 percent of the federal poverty level — $11,770 to $47,080 — are eligible for subsidies to help offset the cost of their monthly premiums.

The ACA originally mandated that all states expand their Medicaid programs, which are jointly run with the federal government, to cover most adults who earn up to 138 percent of the poverty level. Before that, most states had much lower income limits on adults for Medicaid, and as rule tended to bar adults without children from the program. Medicaid beneficiaries typically pay nothing, or very little, for their health coverage.

However, a 2012 Supreme Court decision made Medicaid expansion optional. Despite opposition to President Barack Obama and his health-care law among Republican-leaning states, a steady stream of those states have joined Democratic-leaning states in expanding Medicaid in the past several years.

That trend has been fueled by the fact that the federal government will cover the vast majority of costs of the newly eligible, as opposed to the previously eligible, whose costs are roughly split between the states and federal government. Because of that, hospitals, other health providers and business groups in a number of non-expansion states, particularly the two big holdouts of Texas and Florida, have pushed for expansion there, noting that hospitals' costs for caring for the uninsured would drop as a result.

Another factor driving the expansion trend is a perverse result of the Supreme Court decision: adults who earn below 100 percent of poverty, or $11,770 for a single person, in non-expansion states are not eligible for financial aid to purchase Obamacare insurance, even though people who make more money than they do are eligible for subsidies. That result left the very poor more likely to be uninsured in non-expansion states than their wealthier counterparts.