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The Medicaid Albatross

by Benjamin Domenech on July 24, 2012

Paul Volcker and Richard Ravitch report on the fiscal crisis facing the states, with a familiar culprit involved. From the WSJ:

This state-federal program that increasingly pays for middle-class health care is the major albatross. Spending has grown faster than the economy every year since the 1960s, 7.2% annually over the last decade. It is now the largest part of state budgets—24% on average—and “the imbalance (or structural budget gap) can no longer be absorbed without significant cuts to other essential state programs like education or unpopular tax increases or both.”

The panel also found that these costs are driven by states choosing to increase enrollment and create new benefits, rather than by rising underlying medical costs. One of four New Yorkers is on Medicaid, and 70% of the coverage is not required by federal law.

Some 29% of California’s population is in Medicaid, though it only accounts for 11.8% of the Golden State budget, well below the national average of 15.8%. But that share is so low only because California spends so much on other things too. New York spends more on Medicaid than Florida, Texas and Pennsylvania—combined.

Medicaid costs over the decade are due to jump 8.1% annually, as required by the Affordable Care Act’s expansion. Without ObamaCare, the yearly rise would still be 6.6%.

Keying off the Volcker-Ravitch report, Robert Samuelson writes on the challenge facing the states:

Created by Congress in 1965, Medicaid is hijacking state politics. Although the federal government covers a majority of costs (typically, 57 percent), the rapid rise in the states’ share compels cuts in other programs or steeper taxes. In the last decade, Medicaid spending has increased at nearly twice the rate of states’ tax revenues, notes the Volcker-Ravitch report. The pressures will only intensify as America ages. Although Medicaid serves primarily a younger population (half are children), two-thirds of its costs stem from the 25 percent of much sicker beneficiaries who are elderly and disabled, reports the Kaiser Family Foundation. An older America will raise these costs and squeeze states’ other services.

This makes no sense. It expands the bias — already entrenched at the federal level — to favor the old over the young, the past over the future. And it underlines the need to control health spending, which increasingly is the crux of the national and state budget problems. In 2011, health spending represented 27 percent of the federal budget, up from 14 percent in 1990. For states, Medicaid spending was 24 percent of spending if all state funds, including federal grants, are counted, and 17 percent if only funds from state taxes are measured.

The Obama administration’s effort to expand Medicaid has further focused attention on states’ fears. Under the Affordable Care Act, Medicaid coverage would be extended to an estimated 17 million Americans. But the Supreme Court ruled that states can’t be forced to join. Some states — headed so far by Republican governors — have indicated they won’t, fearing the added costs. Although the federal government will initially cover those costs, it’s reasonable to worry that some future deficit-reduction package might shift more spending to states.

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