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    The Medicaid Costs of Legalizing Illegal Aliens

    The Medicaid Costs of Legalizing Illegal Aliens

    By James R. Edwards Jr.
    July 2010
    Memorandums

    Download a pdf of this Memorandum
    http://www.cis.org/articles/2010/medicaid-costs.pdf

    James R. Edwards, Jr., is a Fellow at the Center for Immigration Studies.

    The recently enacted health reform law, in part, expands eligibility for the Medicaid program. Illegal aliens remain ineligible for Medicaid beyond emergency services. However, this could change if they are legalized. This Memorandum estimates the potential Medicaid costs associated with legalization. The costs associated with the new affordability credits for those with income above the Medicaid threshold are not included here, and would be in addition to the extra Medicaid costs.

    Among the findings:

    We have previously estimated that 3.4 million uninsured illegal immigrants have incomes low enough (under 133 percent of poverty) to qualify for Medicaid under the expanded eligibility established by health reform.


    Based on the 1986 amnesty, we estimate that incomes for uninsured illegal aliens would rise modestly after legalization, leaving 3.1 million uninsured illegal immigrants qualified for Medicaid.


    The primary reason so many illegal immigrants have low incomes is that most have relatively few years of schooling, with more than half not having completed high school. Legalization would not change this fact.


    The estimated cost of providing Medicaid coverage to 3.1 million amnestied illegal immigrants would be $8.1 billion annually.


    We have previously estimated that taxpayer-provided health care for uninsured illegal immigrants costs $4.3 billion annually. About half of that goes to those with incomes below 133 percent of poverty.


    While the annual costs run into the billions, because of their relatively young age and generally good health, the average cost of Medicaid for illegal immigrants is about half of the average general cost of Medicaid per enrollee.


    During the budget period 2014-2019, in which Medicaid expansion takes effect, covering 3.1 million amnestied immigrants would conservatively cost taxpayers $48.6 billion.

    This Memorandum examines the Medicaid costs that amnesty would impose on American taxpayers. Any discussion of legalization must include an understanding of the health care costs associated with legalization, including Medicaid. This is especially true in light of the expansion of Medicaid under health reform. Most of the costs estimated here would be over and above currently projected obligations under health reform’s Medicaid provisions.

    The expansion of Medicaid under the new health reform law already adds significant costs to the system. However, this analsis focuses only on the Medicaid costs for the roughly three million uninsured illegal aliens whose incomes would qualify them for Medicaid. This analysis does not include the costs of the new taxpayer-provided affordability credits for those with incomes between 133 percent and 400 percent of the official poverty level.

    Health Reform’s Expansion of Medicaid

    The Patient Protection and Affordable Care Act (P.L. 111-14, as amended by the Health Care and Education Reconciliation Act (P.L. 111-152), expands the Medicaid program to individuals and families with incomes up to 133 percent of the federal poverty level, including childless adults. One-third above the official poverty level equals $29,000 a year for a family of four.

    Medicaid is a federal-state entitlement program, providing taxpayer-funded health benefits for those meeting specified low-income levels. The federal share of Medicaid spending for those made eligible under health reform’s expansion will cover nearly their entire cost. For the previously Medicaid-eligible, the federal share has averaged 57 percent, with states picking up the difference. Legal immigrants are supposed to rely on their visa sponsors during the immigrants’ first five years in the United States, as required by the 1996 welfare reform law, before they become eligible for Medicaid.

    With respect to fiscal policy, Medicaid, along with Medicare and Social Security, is responsible for the lion’s share of growing U.S. debt and budget deficits. These entitlement programs drive federal deficit spending because they guarantee certain benefits, regardless of fiscal sustainability or the budget impact, to everyone who meets the statutory qualifications. In Medicaid’s case, qualifications relate to low income. Medicaid has contributed significantly to rising state spending and budget pressures, particularly during the current economic downturn.

    Getting a handle on health reform’s Medicaid costs is complicated. First, the law as enacted ensured federal payment of all states’ (not just Nebraska’s) Medicaid expansion costs for two years. Thus, states’ Medicaid obligations related to new beneficiaries will not be realized immediately. Second, because of the implementation schedule, cost estimates appear lower than they will be over the longer term. That is because official projections reflect spending that applies in just the latter six years of a 10-year budget window, 2010-2019. Health reform’s tax increases generally begin in earlier years, while benefits start several years later. Third, administrative costs from Medicaid expansion borne by both federal and state governments and other budget gimmicks are not reflected in most cost estimates.1

    The Chief Actuary of Medicaid (CMS) has estimated that, of the 34 million people who gain health insurance by 2019, more than half (18 million) will be enrolled in the Medicaid program. Furthermore, the CMS actuary has written, “Of the estimated $828 billion net increase in federal expenditures related to the coverage provisions of the PPACA [the health reform law], about one-half ($410 billion) can be attributed to expanding Medicaid coverage for all adults who live in households with incomes below 133 percent of the FPL [federal poverty level].â€
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