New Medicaid expansion incentive clears the path to a healthier Alabama

The American Rescue Plan Act of 2021 answers a question Alabama policymakers have been asking for years: How can we pay for Medicaid expansion? It’s a solution that lawmakers should embrace immediately to build a better, healthier future for our state. And it’s a step you can urge the governor to take today.

An incentive in the new federal COVID-19 relief package means Medicaid expansion in Alabama effectively would pay for itself. Medicaid expansion would bring peace of mind to more than 340,000 adults with low incomes who are uninsured or struggling to afford health coverage. It also would save lives, create jobs and help protect rural hospitals across our state.

If Alabama agrees to expansion, the law will reduce the state’s costs to provide Medicaid coverage for the much larger non-expansion population for two years. This offer would add 5 percentage points of federal funding to the generous match Alabama already receives for Medicaid expenditures.

The enhanced federal match would create more than enough General Fund (GF) “breathing room” to cover the state’s 10% share of Medicaid expansion costs for the first two years, which are the most expensive. Since 2014, Alabama taxpayers have paid $4 billion in federal taxes to help support Medicaid expansion in other states. This new provision is an unprecedented opportunity to bring some of those tax dollars home to cover Alabamians.

How the new federal Medicaid incentives work

Alabama’s “regular” Medicaid match rate (known as the Federal Medical Assistance Percentage, or FMAP) adjusts slightly from year to year. It will be 72.37% for 2022. And the state already is receiving an additional 6.2-percentage-point boost until the COVID-19 public health emergency ends. That brings the overall federal share to 78.57%.

With the additional 5 percentage points, Alabama’s federal match to cover current Medicaid enrollees would increase to 83.57% until the emergency ends. (It would revert to 77.37% for the remainder of the two-year incentive period after the emergency.) An even higher federal match of 90% will apply permanently to coverage for people newly eligible under Medicaid expansion.

Estimates of the value of Alabama’s incentive over the two years range from $740 million (Kaiser Family Foundation) to $940 million (Center on Budget and Policy Priorities). Even at the lower end, the increase would free up far more than the state’s estimated net share of the first year of Medicaid expansion ($168 million).

Research findings from UAB – and other states’ experiences – suggest Alabama’s net costs will drop dramatically after Year 1. (A UAB study projects the state’s net cost for expansion will be around $25 million a year in Alabama.) That’s because the increased federal funding would produce new tax revenues and offset previous state spending on newly covered services.

Alabama is one of 14 states eligible for the new incentive. They include two states – Missouri and Oklahoma – that have passed expansion by referendum but haven’t implemented it yet. They also include the 11 other states, mostly in the South, that have not yet moved to expand Medicaid. Those states are Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Wisconsin and Wyoming.

Why the time for Alabama to expand Medicaid is right now

Timing is a critical factor. While the two-year incentive offer remains available for 10 years, current conditions are especially favorable for Medicaid expansion in Alabama. Medicaid will enter the 2022 budget year with a $252 million “carryforward” from this year.

That surplus likely will allow lawmakers to reduce Medicaid’s GF appropriation next year and keep some funds in reserve. The 2022 GF budget that legislators are considering also was written before the new 5-percentage-point boost became available. So the difference truly would be a windfall.

Alabama can’t use federal funds to match federal funds. But hundreds of millions of dollars of additional, unanticipated federal money would relieve pressure on state budgets. And that would free up enough state funds to pay for Alabama’s share of Medicaid expansion for many years.

The Medicaid expansion incentive is a part of federal COVID-19 relief funding for a reason. The pandemic has tested our health care system to its limits. Besides killing more Alabamians than all modern wars combined, the crisis has revealed deep gaps in care and coverage that leave hundreds of thousands of Alabamians extra vulnerable to the virus and unable to pay for the care they need. A “lost year” has left local communities, businesses and families reeling.

The single biggest step our leaders can take to bridge Alabama’s health care gap and accelerate our economic recovery is to expand Medicaid. The new federal incentive removes the last hurdle in our way. It’s time to expand Medicaid now.

You can speak up now for this investment in a healthier future for Alabama. Click here to email Gov. Kay Ivey and urge her to save lives and create jobs by expanding Medicaid.