Budget

Medicaid Expenses Drain State Coffers

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Mercatus study identifies expansion of eligibility

By Phillip Suderman

The most contested and popular issues during this year’s election races focused on government spending and debt. And, although many newly elected members of Congress will soon arrive in Washington to work on the national fiscal picture, the finances they leave behind in their various states aren’t in top shape. In 2010, 48 states grappled with budget gaps that totaled nearly $200 billion. The chief culprit for many states’ financial woes, most recently is Medicaid.

A study published by the Mercatus Center at George Mason University and authored by University of Kentucky economics professor John Garen, analyzed overall Medicaid growth from 2000 to 2012 using data from the Office of Management and Budget. The OMB estimates that Medicaid will cost $237.7 billion by 2012. However, if Medicaid payments were to stay at the same level that they were today, costs would only be $219.7 billion.

While part of this projected spending growth can be attributed to an increase in healthcare costs and a growing population, a major part also resides in the expansion of Medicaid eligibility. Currently the U.S. experiences population growth of less than 1 percent per year, yet Medicaid enrollment is increasing at an average of 4.2 percent per year according to research done by Matthew Mitchell, a research fellow with the Mercatus Center’s State and Local Policy Project.

Mitchell’s research shows that since 2001, 24 states have expanded their eligibility. In some of these cases, the expansion more than doubled the number of possible participants for the program. In New York, for example, 35 percent of the population is now eligible to receive benefits versus just 13 percent in 2001. The majority of these eligibility expansions did not target the least-advantaged either. Two of the major groups targeted have been childless adults and higher-income parents, demographics which trend above average U.S. income levels.

Currently, federal programs offer at least $1.20, depending on the state, for every dollar put up by the state government, says Mitchell. Yet, even with federal assistance going into state coffers to help pay for Medicaid, many states are still unable to afford the program.

In regards to the overall growth of state spending, Medicaid growth has far outpaced any other program, says Mitchell. On average, states spend approximately 22 percent of their budgets on Medicaid, and costs are only going up.

“State per capita spending on the program grew 116 percent from 1987 to 2007,” he said. “No other aspect of state spending grew anywhere near as fast.”

These numbers take into account the general trend of medical expenses increasing at a faster rate than overall prices.

“Medicaid spending, as a percent of 1987 levels, increased 813 percent by 2009,” said Mitchell.

These soaring costs are causing some states to consider dropping the program, particularly Texas. State Representative Warren Chisum, recently told the New York Times, “the current health care system and Medicaid are bankrupting the state.”

“We need to get out of it,” said Chisum. “With the budget shortfall we’re anticipating, we may have to act this year.”

Other states unable to pay for their part of Medicaid are intent on continuing the program. South Carolina’s Department of Health and Human Services recently indicated that unless new plans are made to cover a $228 million deficit, the state will soon be unable to pay doctors connected to the program. The state is currently encouraging doctors to continue providing free medical practices for an exchange of government I.O.U’s.

The South Carolina’s Department of Health and Human Services told the State Budget Office, “providers will be encouraged to continue seeing Medicaid patients in hopes that they will eventually be paid,” as reported by the Associated Press.

While the focus remains on cutting down the national debt, there is still work to be done on the state level. It’s not just the federal government that needs help cutting down the budget to a manageable level. If states are to reduce their budget deficits, Medicaid reform must be addressed.

Phillip Suderman is a media associate at the Mercatus Center at George Mason University.