The Cheap Fix Republicans Won’t Touch: Medicaid Expansion Could Cut ACA Costs

The loudest critics of “expensive” ACA subsidies oppose the one reform proven to reduce premiums, spending, and out-of-pocket burdens for low-income adults.

Key Findings:

• Across dozens of peer-reviewed studies, Medicaid consistently provides substantially lower-cost coverage than subsidized Marketplace insurance for adults near 100–138% of the federal poverty level—often with dramatically reduced out-of-pocket burdens.

• States that refuse Medicaid expansion inadvertently increase federal spending on ACA premium tax credits, despite political criticism of those same subsidies—creating a policy paradox with major fiscal implications.

Introduction:

Over the past several months, Republican leaders have increasingly framed the expiration of the enhanced Affordable Care Act (ACA) premium tax credits as a necessary step to rein in what they characterize as unsustainable or escalating costs in the state exchanges.

“We’ve got to fix Obamacare, which is causing prices to go up.”
— Sen. Rick Scott (Reuters interview, Oct. 13, 2025)

“The tax credits are subsidizing bad policy.”
— Speaker Mike Johnson (WABE interview, 2025)

There is ironically another way to curb rising ACA premiums, expand Medicaid at least up to 133 percent of the federal poverty line and perhaps beyond that level.

The academic literature consistently shows that Medicaid provides low-income adults with substantially lower-cost coverage than subsidized private insurance.

Across the literature as a whole—not just in a single study—Medicaid consistently delivers superior results at lower costs to low-income households.

Relevant Literature:

Allen, Gordon, Lee et al. (JAMA Network Open, 2021) find that for low-income adults clustered around the Medicaid/Marketplace eligibility cutoff (≈134–143% FPL), subsidized Marketplace coverage produces much higher total spending and far greater out-of-pocket costs than Medicaid, with only modest or mixed differences in quality.

https://pubmed.ncbi.nlm.nih.gov/33399859/

Blavin, Karpman, Kenney & Sommers (Health Affairs, 2018) show that adults at 100–138% FPL in Medicaid expansion states have lower uninsured rates and dramatically lower out-of-pocket spending than similar adults in non-expansion states who instead rely on subsidized Marketplace coverage.

https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.05155

O’Mahen & Petersen (JAMA Health Forum, 2021) argue that extending ACA Marketplace subsidies below 100% FPL would raise public spending because Marketplace plans cost substantially more than Medicaid for very low-income adults, while also exposing them to higher cost-sharing.

https://pubmed.ncbi.nlm.nih.gov/36218746/

Clemans-Cope, Holahan & Garfield (KFF/Urban Institute, 2016) conclude that, across dozens of studies, Medicaid consistently costs less per low-income adult than comparable private insurance, largely because of lower provider payment rates and administrative costs, even though Medicaid typically offers broader benefits.

https://www.kff.org/medicaid/issue-brief/medicaid-spending-growth-compared-to-other-payers/

Katch (CBPP, 2018) synthesizes empirical work showing that covering low-income adults through Medicaid costs roughly 22–28% less per person than comparable private insurance while providing equal or better financial protection and similar access to care.

https://www.cbpp.org/blog/53-years-later-medicaid-still-providing-comprehensive-high-quality-care

Katch et al. (CBPP, “Frequently Asked Questions About Medicaid”) emphasize that Medicaid delivers more comprehensive benefits and much lower out-of-pocket costs than private insurance while still costing significantly less per low-income enrollee, primarily due to lower provider prices and administrative overhead.

https://www.cbpp.org/research/health/frequently-asked-questions-about-medicaid

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Implications Beyond the 100–138% FPL Range?

The evidence summarized in this memo pertains only to adults near the existing Medicaid–Marketplace boundary—roughly 100 to 138 percent of the federal poverty level (FPL) and should not be automatically extended to higher income groups because no state allows Medicaid for non-disabled, non-pregnant adults above 133 percent FPL and there is no real data to support such an expansion.

Several factors favor use of private ACA state exchange insurance instead of Medicaid at higher income levels.

· The cost to taxpayers from ACA premiums subsidies and the potential savings from use of Medicaid instead of subsidized ACA premiums are lower at higher income levels because the federal government’s share of ACA premiums declines with household income. (Readers can confirm this fact with the KFF marketplace calculator.)

· Much of Medicaid’s cost advantage stems from lower provider rates, which can adversely impact household income for providers or can cause higher rates for people receiving private insurance. Savings to taxpayers, which occur from reductions in provider compensation might be good for taxpayers but bad for providers and other health care users.

· Better health status at higher income levels may reduce the cost savings from extending Medicaid, hence gains to taxpayers from the use of Medicaid instead of the ACA premium tax credit may be much smaller than predicted by studies of the impact on low-income groups.

· Extension of Medicaid would increase cost to state taxpayers since Medicaid is a joint Federal/State program.

· Higher income groups are better equipped to handle cost sharing (deductibles, coinsurance and copayments) although we should acknowledge that cost sharing can be difficult for middle-income households also. Go here for more on cost sharing.

Whether expanding Medicaid above 138% FPL would save money is a separate and more complex question that lies outside the scope of the existing evidence.

Conclusion

The literature on the difference in costs between Medicaid and private insurance for low-income adults finds that Medicaid is the lower-cost option and the better option The decision by some states to refuse expansion of Medicaid to 133 percent of the FPL increases costs to taxpayers.

Ironically, Policymakers who argue that ACA subsidies are “too expensive” often oppose the one reform—broader Medicaid eligibility—that would predictably reduce those subsidies and lower federal spending on low-income coverage.

Authors Note: The debate on the ACA premium tax credit is fascinating to me on a number of levels, not just related to the direct health insurance issues.

It has been mentioned in my post the case for a third party, because I don’t understand why Democrats did not seek to make the tax credit permanent when they had the gavel and why Republicans are so bent on cutting both Medicaid and the premium tax credit.

The financial effects and incentives caused by linking the ACA premium tax credit to adjusted gross income was studied in the memo the Life-Cycle Inconsistency at the Center of U.S. Tax Policy. The memo reveals that the ACA premium tax credit and other subsidies linked to AGI often lead to large de-facto increases in marginal tax rates.

The potential expansion of ACA marketplaces could potentially reduce loss of health insurance during employment transitions and loss of jobs during recessions as discussed in the essay Improving Health Insurance Outcomes with Employer Subsidies of State Exchange Health Insurance.

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