Who’s paying for the Medicaid expansion?

It’s a microcosm of a messy system.


Let’s pit the question in context with a budget recap from the WSJ

As ObamaCare came on stream in 2014, spending on Medicaid in exploded.

Annual federal Medicaid outlays rose from $265 billion in 2013 to an estimated $378 billion this year, and they are expected to keep climbing to $439 billion on current trend by 2020.



But, the projections above are premised “on the current trend.”

The CBO underestimated the “power of free” and enrollments continue to soar way past initial projections.

Further, the Medicaid blowout is likely to accelerate, as states that have so far refused the federal freebie accept that the expansion is here to stay and sign on.

So, who picks up the bill?



More basics from the WSJ

ObamaCare funnels federal money to states that add working-age adults above the poverty line to government health-care rolls.

Specifically, the feds reimburse up to 95% for every addition, whereas the rate is below 60% on average for the disabled, children and other vulnerable populations under original Medicaid.

Let’s unpack that …

State governments administer their own Medicaid programs.

Before the Medicaid expansion, the Federal government reimbursed the State governments for about 60% of the Medicaid tab.

Keep in mind that neither the Federal nor the State governments have any money of their own. They simply collect tax dollars (or as Democrats like to say “revenue”) from some citizens and disperse it as if it were their money.

So how do the States raise money for their 40% share?

Simple, property taxes, sales taxes and income taxes.


Click to view state-by-state specifics


Property taxes are paid directly by property owners and indirectly by renters and customers (since the taxes are theoretically rolled into rents and prices). So, more or less, everybody pays property taxes.

Virtually all of property taxes are retained by local governments to fund schools and police & fire departments. With only minor exceptions, property taxes don’t fund Medicaid.

Sales taxes are paid by everybody – including some non-residents (visitors and out-of-staters buying products produced in the state). So again, every resident chips in on sales taxes and some non-residents get tapped.

Income taxes are paid by, well,  income tax payers –- corporations and about half of all households.

So, assuming that tax revenues are fungible, about 60% (23% divided by 57%) of an average state’s Medicaid budget is funded by all residents via sales taxes and 40% comes from state income taxes.

In other words, about 70% of a state’s 40% share of Medicaid is paid by the half of resident households who pay income taxes … the half of residents who don’t pay state income taxes pay the other 30% (via sales taxes).


What about the Federal portion of the bill – the 60%?

Well, that’s all funded by Federal income taxes. So, about half the households pay the full bill.

Bottom line: For the pre-expansion part of the Medicaid program … income tax payers (about half of all households) fund almost 90% of the program; folks who don’t pay income taxes fund about 10% (via state sales taxes).



OK, now, what about the Medicaid expansion?

Only 5% gets covered by the states … 3.5% by state income tax payers, 1.5% those only paying sales taxes.

That’s pretty much rounding error … 95% gets covered by the Feds … which means that Federal income tax payers, for all practical purposes, shoulder the whole load of the expanded Medicaid program.

Now, here’s the interesting twist:

The Federal income tax receipts come from people in all states … but only about 30 states opted into the expanded Medicaid program.

The implication: if your state didn’t expand Medicaid, you’re still paying for the expansion in the states that did … and neither you nor any of your state’s residents are getting anything for it.

Odd system, isn’t it?

Easy to see why the beneficiaries and non-income taxpayers want things to continue as is … and why incomes tax payers – especially in states that didn’t expand Medicaid – want some reform.



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One Response to “Who’s paying for the Medicaid expansion?”

  1. Rick Bailine Says:

    Very clear and very convincing! Just another plain example of why the Old Saw “the rich don’t pay their fair share” is as hollow as most Demkcrats heads!

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