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The Affordable Care Act and Its Impact on Fiscal Operations

The Affordable Care Act enacted more than ten years ago is among the key healthcare-related decisions of the past decade. The law’s key aspects include the promotion of health coverage expansion, new requirements concerning insurance regulations, and an emphasis on disease prevention and low-income populations’ improved access to services (Gruber & Sommers, 2020; Health Policy Center, n.d.; The White House, n.d.).

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The law improves protections for some vulnerable categories of citizens, such as children with pre-existing illnesses. Overall, healthcare-related changes proposed by the ACA are tremendous and range from large-scale initiatives affecting the principles of medical insurance to measures that facilitate citizens’ self-care, such as new rules for restaurants concerning the disclosure of nutritional facts (Gruber & Sommers, 2020; Health Policy Center, n.d.). The ACA and Medicaid expansions have impacted state governments in terms of budgetary and fiscal operations.

The ACA has had important effects on the budgetary and fiscal operations of state governments. As per researchers, fiscal federalism is beneficial due to states’ budgetary decision-making freedom and the decentralization of taxing powers (Gillette, 2012; Sorens, 2011). Under the ACA, state governments were incentivized to implement Medicaid expansions to meet the law’s objectives, but fourteen states have not done it yet due to anticipated budgetary constraints reported as the barriers to implementation (Gruber & Sommers, 2020).

Using the event-study methodology, Gruber and Sommers (2020) evaluate the budgetary consequences of Medicaid expansions under the ACA for particular states and report a 6-9% increase in total healthcare spending after the expansions. The sources of funds should also be considered since these changes affecting state budgetary operations are mainly federal in nature. Despite the requirement for state governments to increase their financial contributions to newly eligible adults’ coverage, changes in spending from state funds did not exceed 1% in Medicaid expansion states (Gruber & Sommers, 2020). Therefore, in spite of concerns, it is not correct that the ACA has placed a significant financial burden on state governments.

It is not clear whether the effects of the ACA on state governments are inherently beneficial, but the absence of serious negative impacts on states suggests rather positive outcomes. For instance, as per a 2013 interview study by Dorn and his co-authors, Medicaid expansion decisions were projected to bring both macroeconomic and net fiscal gains to states, whereas the report by Holahan dated 2014 predicted drastic increases in federal fund inflows for states (Health Policy Center, n.d.). A recent analysis by Gruber and Sommers (2020) confirms these expectations and suggests the absence of harmful influences of Medicaid expansions on non-medical items in state budgets, such as public assistance, education, and transportation.

Another positive aspect is that the existing fiscal rules allow limiting state governments’ exposure to budgetary stress. For example, Medicaid’s current structure automatically increases federal spending during economic downturns that affect the demand for healthcare (Clemens & Ippolito, 2018). Taking that into consideration, it can be suggested that the law’s general effects on state governments’ operations and processes are relatively positive or at least are not explicitly harmful.

To sum up, the ACA and changes to Medicaid coverage have impacted state governments by increasing the inflows of federal funds. Current evidence suggests that the financial burden of Medicaid expansions on state governments is insignificant, but some states continue to cite anticipated budgetary constraints as a barrier to expansions. Despite concerns, increases in spending on healthcare resulting from the ACA do not have adverse effects on state governments’ non-medical expenditures.

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Clemens, J., & Ippolito, B. (2018). Implications of Medicaid financing reform for state government budgets. Tax Policy and the Economy, 32(1), 135-172.

Gillette, C. P. (2012). Fiscal federalism as a constraint on states. Harvard Journal of Law & Public Policy, 35, 101-114.

Gruber, J., & Sommers, B. D. (2020). Fiscal federalism and the budget impacts of the Affordable Care Act’s Medicaid expansion (No. w26862). National Bureau of Economic Research. Web.

Health Policy Center. (n.d.). States and the Affordable Care Act. Web.

Sorens, J. (2011). The institutions of fiscal federalism. Publius: The Journal of Federalism, 41(2), 207-231. Web.

The White House. (n.d.). Our government: The legislative branch. Web.

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