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Health Care Costs and Financing

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Medicaid program expansions to cover otherwise uninsured poor children appear to be relatively inexpensive

State Medicaid programs provide coverage for children in families receiving Aid to Families with Dependent Children (AFDC), as well as children with qualifying disabilities or whose health expenditures qualify them for coverage under medically needy provisions. Beginning in 1984, Federal initiatives expanded Medicaid eligibility to low-income children who were not eligible through these traditional routes. Expanded coverage for these otherwise uninsured children appears to be relatively inexpensive, according to a recent study by Leslie V. Gordon, M.P.P., of the U.S. General Accounting Office, and Thomas M. Selden, Ph.D., of the Agency for Healthcare Research and Quality.

Using State-level data on Medicaid spending from 1984 to 1994, they found that Medicaid program expansions during that time had relatively low incremental cost per enrollee and were substantially below the average Medicaid expenditure for children. They also found that children covered through the expansion tended to be older and have fewer disabilities (and thus were at lower risk for high health care costs). Moreover, many of the most expensive (usually the sickest or most disabled) children covered through the expansion would have been covered by Medicaid's medically needy provisions had the expansions not occurred.

For these reasons, administrative estimates may overstate the true incremental costs of the Medicaid expansions for children. Indeed, the incremental social costs of the expansions may have been even lower than these estimates, since the expansions may have helped to reduce uncompensated hospital care that would otherwise have been reimbursed through Medicaid disproportionate share payments or other sources.

See "How much did the Medicaid expansions for children cost? An analysis of State Medicaid spending, 1984-1994," by L.V. Gordon, M.P.P., and T.M. Selden, Ph.D., in the December 2001 Medical Care Research and Review 58(4), pp. 482-495.

Reprints (AHRQ Publication No. 02-R033) are available from the AHRQ Publications Clearinghouse.

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