Policy Documents

The Effect of Federal Health Care ‘Reform’ on Kansas General Fund Medicaid Expenditures

June 1, 2011

Medicaid is the second largest expenditure in Kansas, exceeded only by education. Kansas Medicaidcovered 355,000 people in 2008, just under 13 percent of the state’s total population of 2.8 million.The Kansas Division of the Budget says Medicaid accounted for $871 million, or 14.3 percent of stategeneral fund expenditures of $6.1 billion in that year. Anticipating increased budget pressure on statesfrom recession-induced revenue declines and increased welfare expenditures, the federal government’sAmerican Recovery and Reconstruction Act (ARRA) gradually increased Kansas' federal match ratefrom 59.4 percent to 69.7 percent through June, 2011. As a result, although total (including federallyfunded) Kansas Medicaid outlays increased during 2009, Medicaid spending out of state general fundsdeclined to $820 million, or 13.5 percent of general fund expenditures during that year. According tothe Kansas governor’s state budget for 2012, the state’s general fund Medicaid expenditures were$713 million during 2010, or 13.5 percent of its general fund expenditures of $5.3 billion.1

Despite ARRA-enhanced federal funding of Medicaid for two years, the Kansas budget situationremains precarious, as the state has experienced nearly a billion dollars in deficit spending over thelast three years. Over the long term, moreover, Kansas legislators must contend with at least $9.3billion in unfunded pension obligations to state employees and retirees.2 In view of large revenueshortfalls and the non-recurring measures consistently used to repair the Kansas budget, Moody’sinvestor rating service recently lowered its outlook on Kansas, indicating an imminent ratings downgrade.3 When ARRA-related higher federal funding of Medicaid is terminated in July, 2011, Kansas’general fund Medicaid expenditures will spike as health care costs have continued to increase since2008. The Patient Protection and Affordable Care Act of 2010 (PPACA), commonly referred to asObamaCare or “Health Care Reform,” promises to intensify the pressure by accelerating Kansas’already-increasing Medicaid spending commitments.

This study estimates PPACA’s effect on future Kansas’ Medicaid expenditures by constructing andcomparing state Medicaid expenditure projections with and without PPACA mandates. Our detailedassessment shows that Kansas would spend $20.8 billion on Medicaid during the first ten years (2014-23) of PPACA’s implementation, which is $4.7 billion (29 percent) larger than projected spendingwithout PPACA. If Kansas continues to operate its Medicaid program as in past years and implementsPPACA, spending on Medicaid will quadruple, going from $713 million in 2010 to $2.8 billion in2023. Kansas historical budget share trends suggest that large and growing budget pressure fromMedicaid expansion under PPACA would compel reductions in education, infrastructure and otherprimary functions.