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Medicaid Cuts on Table for 2005 As Cost Spirals
Medicaid passing elementary, secondary education
costs for states
Dec. 11, 2004 – “Medicaid, the nation's health care
program for the poor, appears headed for the chopping block in 2005 as
President Bush and Congress look for ways to cut the federal budget
deficit,” says Lawrence M. O’Rourke of the Sacramento Bee’s Washington
Bureau. Medicaid is a rapidly growing cost for states and the federal
government that gets far less attention than the rising cost of Medicare
and Social Security, but that may be changing.
“Strengthened by the election, the Republican
majority on Capitol Hill looks ready to join Bush in putting a lid on
federal Medicaid spending, according to members of Congress and state
officials,” writes O’Rourke in today’s newspaper. (Click
to full story)
Medicaid is being
targeted because it has become the largest government health care
program, costing federal and state governments about $300 billion a
year, more than Medicare. Medicaid funds about 17 percent of U.S.
spending on hospital care, he says.
The program serves about 53 million people. It pays
for nearly half of all nursing home care in the United States. It pays
health-care costs of one in four U.S. children and more than 40 percent
of the cost of caring for children in hospitals, Peters Willson, vice
president of the National Association of Children's Hospitals told
O’Rourke.
O’Rourke reports that Republican pollster Linda
DiVall said cutting health care programs is a tough go on Capitol Hill.
Americans, while supporting deficit reduction, are overwhelmingly
against targeting Medicaid for big cuts.
Since 1998, Medicaid inflation has outpaced revenue
growth in state budgets, which ran deficits in 2002 and 2003, according
to the Kaiser Commission on Medicaid and the Uninsured. Next year,
Medicaid is projected to grow at 12 percent. The reason: the rising cost
of medical care, from prescription drugs to long-term care.
Earlier this year the National Association of State
Budget Officers released their study of 2003 and highlighted the growth
of Medicaid costs.
“Medicaid expenditures continue to grow, crowding
out other categories of state spending. The data show that in fiscal
2003, Medicaid accounted for 21.4 percent of all state spending, closing
in on K-12 education spending, which was 21.7 percent,” they say.
Following are highlights on Medicaid from that
report.
2003 State Expenditure Report
National Association of State Budget Officers
 State Spending Trends, Fiscal 2003
State spending totaled $1.1 trillion in fiscal
2003, including both operating and capital expenditures. Compared to the
previous year, that figure reflects a total spending increase of 4.5
percent, with state funds rising by 1.4 percent and federal funds by
10.3 percent (see Tables 1 and 2). Estimates of fiscal 2004 expenditures
also indicate 4.5 percent growth in total spending, with state funds
growing by 2.4 percent and federal funds by 9.9 percent. The low growth
in spending from state funds reflects the exceptionally tight fiscal
conditions that states have struggled with recently. Indeed, between
fiscal 2002 and fiscal 2003, spending from state funds declined in 17
states, and estimates show that between fiscal 2003 and fiscal 2004 it
declined in 11 states. Additionally, it should be noted that 23 states
use a biennial budget cycle, and that in most cases, funds are not
expended evenly in the two-year cycle. This may affect total
expenditures in some states from year to year.
Elementary and secondary education is the largest
category of state spending, accounting for 21.7 percent of fiscal 2003
total state expenditures, and 35.5 percent of general fund spending.
Medicaid growth continues to outpace every other functional category of
state expenditure, increasing by 8 percent in fiscal 2003; Medicaid now
totals 21.4 percent of all state spending.
Total elementary and secondary education spending
grew by 6.4 percent and higher education spending by 3.2 percent.
Expenditures for the two functions account for
nearly half of all general fund spending. Fiscal 2004 estimates show
that growth in higher education slowed further, to 1.6 percent.
Federal Fund Expenditures
Medicaid accounts for the largest portion of state
spending from federal funds at 43.5 percent. Elementary and secondary
education and transportation, at 10.6 and 8.7 percent respectively,
follow. Since 1994, Medicaid’s share of spending from federal funds has
been fairly level, roughly in the 40 to 43 percent range (see Table 3).
Expansions to the Medicaid program, increasing caseloads, and the
increased use of provider taxes and voluntary contributions to secure
matching federal funds all help to explain these increases.
Medicaid
Total Medicaid spending in fiscal 2003 excluding
administrative costs was $243.6 billion, or 8 percent more than fiscal
2002. Based on those amounts, Medicaid accounted for 21.4 percent of
total state spending in fiscal 2003.
Medicaid is a means-tested entitlement program
financed by the states and the federal government that provides medical
care for more than 50 million low-income individuals.
While approximately one-quarter of Medicaid
beneficiaries are elderly and disabled and three-quarters are children
and nondisabled adults, roughly three-quarters of Medicaid costs are for
the elderly and the disabled and one-quarter for children and
nondisabled adults.
Figures 14 and 15 provide actual and projected
Medicaid costs for total spending and for state spending from 1970 to
2004. In addition to Medicaid, state spending on other health services
accounts for another 9 percent of general fund spending.
Growth in Medicaid Spending
For governors’ proposed fiscal 2005 budgets, states
estimated growth rates of 12.1 percent in state funds and 3.9 percent in
federal funds. The large variance in rates of growth for the federal and
state shares are attributable to the temporary increase of 2.95 percent
in the Federal Medical Assistance Percentage (FMAP) that was in effect
from April 2003 through June 2004 as part of state fiscal relief.
Even with extensive cost containment efforts and
the federal fiscal relief, states’ Medicaid expenditures have exceeded
the amounts originally budgeted for the program. Twenty-three states
experienced Medicaid shortfalls in fiscal 2003 and 18 states anticipated
shortfalls in fiscal 2004.The shortfalls as a percentage of the total
Medicaid program in fiscal 2003 ranged from less than 1 percent to 16.4
percent of the program costs, averaging 4.6 percent. The combined amount
of the shortfalls in fiscal 2003 and fiscal 2004 totaled nearly $7
billion.
Medicaid Cost Containment Actions
By undertaking a variety of cost containment
actions, states have maintained a growth rate below private insurance
levels. Over the past three years the number of states that have
implemented policies to control Medicaid costs between fiscal 2002 and
fiscal 2004, according to the Kaiser Commission on Medicaid and the
Uninsured, are as follows: • 50 states reduced or froze provider
payments; • 50 states implemented policies to control prescription drug
costs, such as prior authorization and preferred drug lists; • 34 states
reduced or restricted eligibility; • 35 states reduced benefits; and •
32 states increased co-payments.
States are faced with the same cost pressures that
affect private insurance, such as double-digit increases in prescription
drug costs and expanding medical services. Enrollment increases also
have played a major role in the rise of Medicaid spending, growing by
8.8 percent in fiscal 2003 and an additional 5.5 percent estimated in
fiscal 2004, according to the Kaiser Commission on Medicaid and the
Uninsured.
In addition to cost containment measures to limit
spending, about one-half of the states planned to generate additional
revenues for Medicaid, mostly from fees or taxes placed on health care
providers. Other measures include reallocating tobacco settlement funds
and increasing cigarette taxes.
The Jobs and Growth Tax Relief Reconciliation Act
of 2003, which included state fiscal relief, helped states by providing
a temporary increase in the federal Medicaid matching rate, amounting to
$10 billion in fiscal relief to states during fiscal 2003 and fiscal
2004.The fiscal relief funds were used in a variety of ways to assist
Medicaid programs. About three-fourths of the states used the funds to
avoid, minimize, or postpone Medicaid cost containment measures and/or
to resolve a shortfall in the Medicaid budget.The remainder of states
held the funds in reserve, have yet to make a decision on some or all of
the funds, or increased programs.
States continue to be squeezed by Medicaid
spending pressure.
Their extensive cost containment efforts combined
with the state fiscal relief provided by the federal government largely
has helped states avoid further cuts to Medicaid services in the current
year.
However, over the long run, projections for
Medicaid spending by both the Congressional Budget Office and the Office
of Management and Budget range from between 8 percent and 9 percent.
Even after a full economic recovery is underway for state budgets,
increases in Medicaid costs will far outstrip the growth in state
revenues into the future.
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