Note that the net Federal, State and total public costs for both proposals are displayed by State in Figure 13. Detailed estimates of the costs, similar to those displayed in Figure 15 and Figure 16 are displayed in the Appendix for each State. Below we describe the derivation of the net cost amounts for the States under each proposal.
President’s Proposal. The net cost to state governments under the President’s proposal is $10.3 billion (Figure 15). The total amount of the state tax revenue lost due to the deduction would be $34.3 billion. This would be offset by an increase in $25.4 billion in increased revenue due to taxing the value of ESI coverage.
We estimate that approximately $8.1 billion in DSH funding would be redirected to the Affordable Choices plan. As described above, this represents at least 50 percent of each State’s current DSH spending. 19 The Federal and State share of this DSH funding is determined by the Federal Medical Assistance Percentage (FMAP). The remaining Affordable Choices costs are split between State and Federal spending using the enhanced FMAP rate. This brings the State share of total Affordable Choices spending to $6.4 billion. However, because the DSH funding amount is money the States currently spend, the net spending is equal to the remaining Affordable Choices spending split at the enhanced Federal matching rates, which amounts to $2.9 billion for States.
The States also incur additional Medicaid and SCHIP spending from increased enrollment, but experience $3.3 billion in savings with their other State and Local health programs, such as State “safety net” clinics. These other public programs essentially act as “safety net” programs for many of the uninsured who would become covered under the President’s proposal.
Thus, the gross costs to the States amounts to the sum of the revenue lost due to the tax deduction ($34.4 billion), the State net Affordable Choices spending ($2.9 billion), and spending for additional Medicaid and SCHIP enrollees ($1.8 billion). The costs are offset by the savings to other public programs ($3.3 billion) and revenue gained from the removal of the tax exclusions ($25.4 billion) amounting to the net cost to the States of $10.3 billion.
Congressional Tax Credit Proposal. The costs to State governments under the Tax Credit proposal are more straightforward in comparison to those under the President’s proposal (see Figure 15). In this case the State does not experience any loss of tax revenue since they do not provide any tax deduction or tax credit.
The States, due to increased enrollment, experience increased Medicaid and SCHIP costs of $0.8 billion. This amount is more than offset by the savings to other public programs, $5.1 billion, and the revenue gained from the removal of the tax exclusions, $25.4 billion. Thus, the Congressional proposal amounts to a net savings to States of $29.7 billion.