4. Medicaid Funding
Medicaid is the 800-pound gorilla in budget discussions in state capitols. The National Association of State Budget Officers concluded in a recent analysis of state budgets, Medicaid is the single largest portion of state spending, overtaking the traditional position of elementary and secondary education.
NASBO estimates about 21.8 percent of total state expenditures in the 2010 fiscal year were for Medicaid and 20.8 for elementary and secondary education.
Growth rates for Medicaid spending are higher than ever as a result of increased enrollment due to the economic downturn and continuing high unemployment. NASBO calculated a 7.9 percent annual growth rate for 2010 fiscal year total spending, an 11.2 percent rate for the 2011 fiscal year, but projects a decline in overall spending for Medicaid of 2.9 percent in the 2012 fiscal year.
The overall decline in Medicaid spending for 2012, however, masks a large increase in state spending for the required state match, which reverted on July 1, 2011, to pre-stimulus levels. NASBO’s data show governors proposed a whopping 18.6 percent increase in state spending for Medicaid at the same time the federal share would fall by 13 percent.
“Even though Medicaid is not a huge percentage of state budgets, it is increasing so much that it’s really driving state budget costs,” Scott Pattison, executive director of NASBO, told CSG. “The most interesting figure is that in the aggregate, we’re finding that states are going to spend nearly $16 billion more on Medicaid for this current fiscal year 12 than they did last year … to make up for loss of recovery funds and the growth of the program.
“To me, that is extremely significant that the only area of major actual growth in spending at the state level for fiscal year 12 is Medicaid. To me that tells you a lot,” Pattison said.
Governors, legislators and Medicaid programs across the country are taking a number of actions to contain Medicaid costs. More than half the states reported to NASBO that they planned to reduce (33 states) or freeze (16 states) provider payments in 2012, implement strategies to reduce prescription drug spending (27 states), and enhance program integrity efforts (32 states). Other common plans were to limit benefits, institute new or high copayments and expand managed care.
In contrast to increasing Medicaid spending, in 2012 states are reducing primary and secondary education by $2.5 billion, higher education by $5 billion and public assistance by $3.5 billion, according to NASBO.
“A lot of people joke that it’s like a Whack-a-Mole game. If you are hitting down something so you can have more money for Medicaid, that those other parts that are being whacked are still being cut,” said Pattison.
The outlook for budget growth in state programs outside of Medicaid may get worse before it gets better. Beginning in 2014, the expansion of Medicaid eligibility mandated by the Affordable Care Act begins, and in 2017 states must start paying a share of the increased costs.
“It’s difficult to see how states are going to be able to restore the billions of dollars cut out of education and other programs over the recession, much less have new revenue for new priorities and programs, when they have no choice but to cover rising Medicaid expenses,” said Jennifer Burnett, CSG Program Manager, Research Services and Special Projects.
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