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How Expanding Medicaid Saves Medicare Money

By Kathleen Stoll,


A recent report from the Government Accounting Office(GAO) points to one more reason why expanding health coverage under the Affordable Health Care Act (ACA) makes good economic sense. Expanding Medicaid can eliminate gaps in the health coverage of those who eventually enroll in Medicare. This drives down Medicare’s costs because enrollees tend to enroll in the program in better health.

The report, “Medicare: Continuous Insurance before Enrollment Associated with Better Health and Lower Program Spending,” provides concrete evidence that the Affordable Care Act—which provides health coverage to more people both through the health insurance marketplace and by funding Medicaid expansion for the states that choose to take it up—can actually help preserve and strengthen Medicare.

In comparing seniors with and without health insurance prior to their enrollment in Medicare, the report findings include the following:

  • Seniors who had health insurance for six years prior to Medicare are more likely to report better health after Medicare enrollment.
  • These same seniors cost Medicare less money (35 percent lower, on average) in the first years of enrollment because they used fewer or less costly health services.
  • The savings to Medicare was an average of $2,343 per insured enrollee.

18 percent of individuals who were 55 to 64 years of age lacked health coverage

People are eligible for Medicare when they turn 65. As the report shows, having health insurance prior to enrolling in Medicare is critical to better health outcomes and lower costs per enrollee. But according to the report’s authors, in 2012, nearly 7 million individuals aged 55 to 64 lacked health insurance (about 18 percent of this age group). Why did they lack health insurance? Most are either not working, or working in lower-paid jobs that lack employer-based health insurance. These seniors struggle to meet daily expenses, have little or no money saved for retirement, and don’t want to accrue debt as they look toward the future.

What effect does lack of health coverage have on people who enroll in Medicare?

For seniors who lack health coverage prior to age 65 (when they become eligible for Medicare), many avoid or defer seeking necessary medical care because of the cost. As a result, they enter the Medicare program with untreated health problems that may have grown worse. This is essentially a pent-up demand for services.

Fortunately, the Affordable Care Act has the potential to improve this problem. How? By increasing access to health coverage through the marketplace and by funding Medicaid expansion in states that choose this option—thus extending health coverage to many more people, including the uninsured seniors whose health conditions can drive up the cost of Medicare.
Seniors with previous health coverage use health care services more effectively

An interesting counter-intuitive finding from the GAO report indicates that seniors with previous continuous coverage actually had more physician office visits after Medicare enrollment than those without prior insurance. The authors of the report suggest that this finding may indicate that, not only are these seniors in better health, but they are also accustomed to seeking medical care from a doctor’s office (where it is most effective) rather than an expensive emergency room (where it becomes more costly).

How can the Affordable Care Act strengthen Medicare?

The Affordable Care Act can strengthen Medicare by providing affordable health insurance for seniors (those with incomes up to 400 percent of the poverty level—roughly $46,000 annual income for one person) in two ways:

  • providing robust premium tax credits through the health insurance marketplace
  • funding the expansion of Medicaid in states that choose this option. For seniors with the lowest incomes, Medicaid expansion has the potential to provide quality, affordable coverage to more than 2 million people who are 55 to 64 years of age.

However, because the U.S. Supreme Court made it an option for states to expand Medicaid to everyone below 138 percent of poverty, half of the states have not yet decided to expand this program. This statistic is notable because the Affordable Care Act provides 100 percent federal funding for the first three years of expansion (and never less than 90 percent after that).

Accepting federal dollars to expand Medicaid helps ensure that every senior enters Medicare in better health and will cost the Medicare program less money as a result.

If your state has not made the decision to expand Medicaid, it is not too late. States can expand Medicaid at any time. If you care about seniors and the future of the Medicare program, urge your state’s governor and state representatives to expand Medicaid. It is a win-win for our families and our nation’s health care system.

For a 50-state map on Medicaid expansion efforts in 2014, view our recent infographic, “A 50-State Look at Medicaid Expansion: 2014.”