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Medicaid News
Medicaid Spending Can Be Sustained by Increases in
Government Revenues, Says Study
Share of national health spending to remain
unchanged until 2025
Feb. 26, 2007 - A new study of future funding
requirements for Medicaid concludes that expected growth in government
revenues is likely to be large enough to sustain Medicaid spending
increases over the next 40 years, while also allowing substantial real
growth in spending for other public services. It is a less dire
situation, the report says, than suggested by "conventional wisdom."
And, it is welcome news for millions of senior citizens, who may need to
rely on this health care program for the poor, as their savings are
depleted by long-term care.
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Medicaid News |
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The report by Kaiser Family Foundation’s Commission
on Medicaid and the Uninsured (KCMU) was written by Richard Kronick of
the University of California, San Diego and David Rousseau of KCMU and
published by the journal Health Affairs on Friday.
Unlike the annual examination of the long-term
financial status of the Medicare program via the Medicare Trustees’
report, there has been no comparable careful look at long-term Medicaid
spending and the availability of government revenues to support it. This
analysis fills that gap by providing a detailed forecast, based on
historical trends, of projected spending over the next 40 years,
2005-2045, for Medicaid as currently structured and comparing projected
Medicaid spending to projected overall health spending and federal and
state revenue growth.
“Even under pessimistic assumptions, the study
provides a new perspective on Medicaid’s future financing,” said study
co-author Richard Kronick. “While a substantial component of state
government spending, Medicaid is not likely to be the financial burden
squeezing out other public priorities that some policymakers fear,” he
added.
After accounting for demographic and health
coverage trends such as an aging population and declines in
employer-sponsored insurance, the study finds that Medicaid’s share
(16.5 percent in 2005) of national health expenditures (NHE) is expected
to remain at an average 16.6 percent from 2005 to 2025 and slowly rise
to 19 percent by 2045 (see Figure 1).
However, as overall health spending increases as a
share of gross domestic product (GDP) from 2005 to 2045, there will be a
commensurate increase in the share of GDP Medicaid spending represents,
according to the study. The results lead the authors to conclude that
“there is little that is special about Medicaid spending: It is likely
to increase with health spending more generally, neither much more
quickly nor much more slowly.”
“As an integral part of the nation’s health care
system, covering 55 million people, Medicaid experiences the strains and
pressures of the overall health system. This first of its kind study of
Medicaid makes it clear that the growth over the next 40 years in
Medicaid spending will largely be driven by the growth of health
spending as a share of the economy. If there is a culprit in the room,
it is not Medicaid but ever rising health costs that threaten future
sustainability,” said Diane Rowland, executive director of KCMU.
“Efforts to reduce the growth in Medicaid without
shifting costs or threatening coverage will ultimately require better
controlling the rate of growth of health spending overall,” she added.
How
Rapidly Will Medicaid Grow?
Although long-term projections always involve
uncertainty, these estimates provide a framework for assessing how
future Medicaid spending might be affected by demographic and
programmatic changes.
The study projects that over the next 40 years, as
overall health spending grows, Medicaid will also grow but stay at
roughly the same share of national health spending in the coming decades
due to three key factors:
● Although many adults are expected to lose
employer coverage, few of them are eligible for Medicaid under current
rules, and although more children are expected to enroll in Medicaid,
the program’s low per capita for spending for children limits the
impact;
● The increase in the number of Medicaid’s
disabled enrollees drove growth in the program’s spending historically,
but growth in this population has slowed in the past decade and is
projected to remain slow over the next twenty five years; and
● The projections assume that nursing home and
home health prices will grow roughly at the rate of growth of wages
(which grow far slower than health care spending), meaning that while
more elderly people will need long-term care (LTC), Medicaid LTC
spending as a share of overall health spending is not likely to increase
significantly.
Medicaid’s Impact on State and Federal Spending
If Medicaid spending and state and federal revenue
growth continue to follow long-term historical trends, then state
revenues available for non-Medicaid public priorities are projected to
grow at an inflation-adjusted 2.5 percent per year through 2025, roughly
the projected rate of inflation-adjusted GDP growth. Even in a scenario
where state revenues did not increase as a share of GDP and Medicaid
spending grows more quickly, state revenues for non-Medicaid services
would still rise through 2025. Spending pressures will be somewhat
greater in the two decades following 2026, but under all but the most
pessimistic scenarios, states can still expect substantial revenue
growth for services other than Medicaid.
“While some states in some years will no doubt
experience significant fiscal strain due to Medicaid spending
growth—particularly during periods of recession, the long range scenario
for Medicaid’s impact on state revenues is not calamitous,” said
co-author David Rousseau.
The study shows a similar picture for federal
revenues, with growth in revenues for non-Medicaid services averaging an
inflation-adjusted 2.3 percent annually from 2006 to 2025, slightly
lower than the inflation-adjusted 2.5 percent if Medicaid spending had
remained constant as a share of GDP for the period.
The
Health Affairs article, “Is Medicaid Sustainable? Spending
Projections for the Program’s Second Forty Years” and an interview with
the authors is available at
http://www.kff.org/medicaid/kcmu022307pkg.cfm.
The
Kaiser Commission on Medicaid and the Uninsured provides information and
analysis on health care coverage and access for the low-income
population, with a special focus on Medicaid's role and coverage of the
uninsured. Begun in 1991 and based in the Kaiser Family Foundation's
Washington, DC office, the Commission is the largest operating program
of the Foundation. The Commission's work is conducted by Foundation
staff under the guidance of a bipartisan group of national leaders and
experts in health care and public policy. The Kaiser Family Foundation
is a non-profit, private operating foundation dedicated to providing
information and analysis on health care issues to policymakers, the
media, the health care community, and the general public. The Foundation
is not associated with Kaiser Permanente or Kaiser Industries.
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