Size of Medicaid Expansion Influenced Administrative Spending

MM Curator summary

[ MM Curator Summary]: States that had more room to grow (ie had higher uninsurance rates) benefitted more when they expanded (in terms of administrative costs), likely due to economies of scale and handing over more scope to MCOs.


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States that enacted Medicaid expansion and had high uninsurance rates among low-income residents were considered large expansion states and subsequently saw a slight decrease in administrative spending.


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By Victoria Bailey

November 30, 2021 – Medicaid expansion did not impact overall administrative spending, but states with large expansions saw slight reductions in spending while smaller expansions led to minor increases, according to a Health Affairs report.

Administrative spending covers expenditures for eligibility and enrollment assessments and processes, interagency costs, claims processing, information technology systems, and more. States did not receive reimbursement for administrative costs following Medicaid expansion, and there is little research that speaks to whether expansion impacted this spending.

Researchers from Indiana University gathered data from all fifty states and focused on two outcomes in each state: the percentage of total spending that was administrative and per enrollee administrative spending.

State expansion, spending, and enrollment data from 2007 to 2017 were obtained through various CMS and Kaiser Family Foundation (KFF) reports.

The Health Affairs report looks at the differences in administrative spending between states that have expanded Medicaid and nonexpansion states. Additionally, the researchers compared large expansion states to small expansion states and states that expanded Medicaid traditionally through the Affordable Care Act to states that used Section 1115 to expand their program through waivers.

Researchers classified expansions as large or small by using the median uninsurance rate among nonelderly adults who had incomes below 100 percent of the federal poverty level in the year before the expansion. If the uninsurance rate was high, expansions were considered large.

Medicaid expansion became optional for states in 2014. Since then, 38 states and Washington DC have expanded their Medicaid programs.

Prior to 2014, expansion and nonexpansion states had similar levels of administrative spending, but most expansion states saw a larger unadjusted decline in per enrollee administrative spending after expanding their programs, researchers found.

The average annual per enrollee administrative spending in nonexpansion states before 2014 was slightly more than $444. Between 2014 and 2017, it fell to a little over $408, signifying a $35.60 decrease.

States that underwent large expansions saw a $106 annual decrease, going from an average of $507 per enrollee administrative spending pre-2014 to $401 between 2014 and 2017. States that had small expansions saw a slighter decrease of $20.99.

The adjusted analysis revealed very few differences in per enrollee administrative spending for nonexpansion and expansion states, including states that used ACA expansion methods and ones that expanded through waivers.

When categorizing Medicaid expansion states by expansion size, the differences were slightly more apparent. States that had large expansions saw a significant decrease in per enrollee administrative spending of $77 compared to nonexpansion states, while states with small expansions saw a nonsignificant increase compared to nonexpansion states.

In looking at the percentage of total spending that is administrative, researchers found similar results. Large expansion states had a nonsignificant reduction compared to nonexpansion states. Meanwhile, small expansion states had a significant increase in the percentage of spending that was administrative compared to nonexpansion states.

Overall, Medicaid expansion did not significantly escalate administrative spending for expansion states. But when considering expansion sizes, small expansions led to slight increases in administrative spending.

“States with larger expansions may experience economies of scale, where it becomes less expensive and they become more efficient as more people are enrolled in the program,” the report stated.

Additionally, states with larger expansions are known to have stricter eligibility criteria and may spend less on Medicaid overall, according to the researchers.

Small expansion states may have seen increases in administrative spending due to differences in reimbursement rates, application requirements, and eligibility and enrollment processes. States with smaller expansions also tend to have more generous Medicaid programs, which could exhibit higher spending, the report noted.

Twelve states have yet to expand Medicaid, barring access to healthcare coverage for many of their residents. Most of these states have high uninsurance rates and low eligibility thresholds which would lead to large expansions, researchers said. According to the study results, these expansions would increase coverage access while also reducing administrative spending.

The American Rescue Plan Act is encouraging states to expand Medicaid as well by offering an increase in federal medical assistance percentages (FMAP) for the first two years after expansion.


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