The Pennsylvania State Legislature is currently weighing the decision to expand Medicaid. A RAND report released in March 2013 analyzed the effect of Medicaid expansion for Pennsylvania, focusing on how the expansion decision might affect health insurance coverage, economic growth, and the Commonwealth’s budget.¹

We estimated that Medicaid expansion would cover 350,000 more Pennsylvanians relative to a scenario in which Medicaid is not expanded. While the expansion would initially be financed entirely with federal funding, by 2020 the Commonwealth would need to contribute 10 percent of the costs associated with covering newly Medicaid-eligible adults. We estimate that the new federal...

Our initial budget analysis contained two types of expenditures that will need to be funded by the Pennsylvania Treasury: the coverage costs for those newly enrolled in Medicaid and the administrative costs associated with this population. We also included revenue from the gross receipts tax (GRT) on Medicaid MCOs.

To help policymakers understand the possible impacts of uncertainties in the budgetary assumptions, this addendum supplements our original work by presenting additional budget components and calculations based on alternative assumptions. We considered alternative assumptions for Medicaid administrative costs and about the applicability of the GRT. We also considered additional components not...

The itemized results for this additional analysis can be found in Table 4.1. The first row shows the estimated state budgetary costs associated with covering adults who are newly eligible for Medicaid as a result of expansion. These costs are derived from our original report, and we assume they are insensitive to the assumptions described above.

In the remaining rows, we present alternative assumptions about cost components that may be uncertain. For example, we present two sets of assumptions about administrative costs. In the row labeled “Administrative Costs, Initial Assumption,” we show estimates from our original approach, which assumed the...

As with all estimates and analysis, this work has limitations. There are some possible revenues and expenditures that we have not taken into account. There are also some trends that will affect the outcome.

One aspect that we did not include in this assessment is the effect of the reduction in private uncompensated care. Some of the uncompensated care costs paid by hospitals may be transferred to the insured patients. To the degree this is true, expanded Medicaid coverage of otherwise uninsured low-income persons would translate into lower premiums for everyone and have add-on economic effects not included in this...

This analysis, along with the initial study, should help put the budget issues in a more complete context. While Medicaid expansion will require additional spending by the Commonwealth of Pennsylvania, these costs will be more than offset by additional revenue or reductions in other spending in the 2014–2020 timeframe.

The magnitude of the budget impacts will vary for each of the components. Savings from the General Assistance Program will be the single largest driver of changes in the budget from Medicaid expansion. Medicaid coverage costs resulting from expansion have a lower but still substantial impact on the budget. The...