Arizona a Prime Example of Financial Ruin by Medicaid

Published September 1, 2008

Medicaid is the primary culprit behind state and local governments’ bleak financial outlook, according to an American Enterprise Institute (AEI) review of data recently released by the federal Government Accountability Office (GAO).

The financial security of local governments will “rapidly deteriorate in less than a decade,” said Michael S. Greve, John G. Searle Scholar at AEI and coauthor of “As Arizona Goes, So Goes the Nation: How Medicaid Ruins the States’ Fiscal Health.”

Tripling of Costs

According to the report, released in mid-July, Arizona is facing a general fund budget shortfall of more than $1.3 billion in its $10.9 billion budget–a predicament largely caused by the state’s expansion of its Medicaid programs, which have grown dramatically as a share of the state’s overall expenditures.

In 1987, the report notes, just over 10 percent of the state’s budget was dedicated to Medicare expenditures. By 1992 that percentage was 17.8, and by 2006 it was 22.2.

In fiscal year 2000, Arizona spent $463 million on Medicaid, and in FY 2009 that figure is projected to be $1.5 billion. That’s “a threefold increase in less than a decade,” the report notes.

Speeding Ticket Money

“To ameliorate the fiscal crisis,” the report observes, “the Arizona legislature enacted modest cuts” and introduced “a stepped-up traffic enforcement system” that produced $90 million in speeding tickets but cost $2 billion in new debt to re-equip police and highway patrols and ramp up the new enforcement program.

Unfortunately, says Greve, “No state can avoid the choice between more debt or rip-roaring tax hikes, combined in some way. The only plausible solutions to the states’ Medicaid-induced fiscal troubles are to be found in Washington,” the source of the policies governing this leviathan of a federal program and what states are allowed to do to cope with its mounting cost.

“However, genuine reform of Medicaid is an unlikely scenario,” the report notes, adding, “Medicaid is designed to be fiscally unsustainable–but politically self-sustaining.”

Matthew Smith ([email protected]) writes from Alabama.

For more information …

“As Arizona Goes, So Goes the Nation: How Medicaid Ruins the States’ Fiscal Health,” Michael S. Greve and Philip Wallach, American Enterprise Institute, July 17, 2008:,pubID.28340/pub_detail.asp