The Impact of the Affordable Care Act's Medicaid Expansion on Medicaid Spending by Health Care Service Category

The 2014 Medicaid expansion revised Medicaid eligibility provisions to allow for low-income, non-elderly adults to be eligible for Medicaid in those states which opt for this change. During the first three fiscal years after the expansion, there were more than 11.9 million newly eligible Medicaid enrollees nationwide. I investigate the impact the 2014 Medicaid expansion had on Medicaid spending by the government. I use data from the Centers for Medicare and Medicaid Services on all Medicaid expenditures over an 18 year period, including three years post-expansion. I apply a difference-in-differences design to exploit the variation among states electing to participate in the expansion and the health care services they offer. These data allow me to study the fiscal impact of the expansion on all possible health care services. I find that the expansion increased total Medicaid spending by 14 percent in participating states, but this masks the substantive heterogeneity in Medicaid spending across the 21 health care service categories. Most notably, dental and rural health clinic services increased by 201 and 99 percent, respectively. My results show that the expansion is having a disproportionately significant effect on Medicaid spending for clinic services in rural areas compared to metropolitan areas. Overall, the service categories experiencing a significant increase after the expansion suggest that the new adult group is seeking more routine or preventive care compared to the traditional Medicaid population. The increase in routine and preventive care has the potential to result in better health outcomes and fewer medical emergencies in the future, ultimately lowering Medicaid spending by the state and federal government over the long term.