Amid the clamor over Obamacare’s early and embarrassing IT struggles, a quieter victory for the Affordable Care Act is well underway.

The Medicaid expansion is working.

Since its creation in 1965, Medicaid has served as America’s health insurance safety net for poor families.

Traditionally, however, the program, which operates as a partnership between the federal government and the states, has been mostly limited to children, pregnant women, the disabled and certain elderly adults dually-eligible for Medicare.

Over the years, some states have opted to extend coverage to parents of poor children, particularly if they are working, but there has never been a national health insurance safety net for able-bodied childless adults.

Medicaid Gets Upgraded

The ACA changed this, expanding Medicaid to all adults age 19-64 who are below 138 percent of the federal poverty. The expansion begins on January 1, 2014.

While the federal health exchange languishes in an unflattering public spotlight, Medicaid expansion is off to a flying start.

Thus far, 25 states (including D.C.), have opted for expansion, while 26 (mostly red) states remain on the sidelines.

Of the 37,000 people who have thus far gained health coverage in New York, for example, two-thirds qualified through Medicaid.

In Washington, the Medicaid expansion accounts for half of its 35,000 new enrollees. In Kentucky, four out of every five of the state’s 26,000 newly insured can thank Medicaid for their benefits.

Two main factors account for Medicaid’s early success. First, states operate their own Medicaid programs, which means they are largely insulated from the federal government’s IT issues.

Second, a handful of states have taken advantage of a “fast-tracking” option permitted by the federal Department of Health and Human Services. Fast-tracking, or facilitated enrollment, allows states to offer an express lane to residents already known in their welfare systems, such as food stamp recipients.

Because eligibility standards for food stamps are generally more stringent than those for Medicaid, states can effectively presume such individuals are eligible for the Medicaid expansion and enroll them with minimal hassle, conserving valuable administrative resources and bypassing bureaucratic delays.

Persuading the Cynics

All this is well and good, but it is unlikely to make converts of Obamacare’s critics.

What may change their minds, though, are costs. The major argument expansion opponents make is that it will be too expensive for cash-strapped states.

Here, the evidence is encouraging.

  • The federal government will bear the lion’s share of new Medicaid costs through 2016, declining to 90 percent by 2020.
  • If all states expand Medicaid, the feds will inject $952 billion into state budgets between 2013 and 2022. In other words, the feds are paying for 93 cents of every new Medicaid dollar.

As if this wasn’t already a good deal for states, it gets even sweeter—because states will save billions on lots of things they currently pay for.

When the uninsured seek medical care but do not pay for it, the bill falls to someone else—and that someone else is usually the government.

All-Ages Coverage

Expansion states will also see major savings from the reclassification of “existing eligible” clients to “newly eligible.”

  • Seven “prior expansion” states already offer Medicaid to childless adults up to at least 100 percent of the federal poverty level (FPL).
  • Because these adults are now newly eligible under the ACA, the federal government will pay an increased share of their costs, rising to 90 percent by 2020. This is expected to generate more than $34 billion in state savings.

Some states already provide limited benefits to certain adults voluntarily, through waivers.

These populations include special categories of adults, including parents, pregnant women, women with breast and cervical cancer, and family planning program participants.

  • Many of these limited benefit populations will now qualify for full benefits under the Medicaid expansion. Others above 138 percent of FPL will qualify for subsidies on these exchanges. Both will save states money—to the tune of $101 billion by 2020.
  • Medicaid expansion will also have significant macroeconomic effects. An influx of federal dollars means new spending and new jobs in the healthcare sector.
  • Newly hired workers will spend what they earn, creating ripple effects for small businesses and stimulating local economies. For states, this will also generate additional income and sales tax revenue.

Better insurance coverage also means a healthier workforce, which could drive labor force participation and productivity.

  • Even if things stay as they are and some states refuse to expand, CBO projects 12 million Americans will gain coverage as a result of the Medicaid expansion by 2020, accounting for half the ACA’s reduction in the uninsured.

But clearly the stakes are higher and the possibilities greater.

The sooner the holdout states realize this, the sooner their most vulnerable residents will be better off. But so, too, will be their state budgets.

Interested readers should check out the Urban Institute analysis as well as a second Urban report for further discussion of the Medicaid expansion.