Entitlement Cost Explosion Drives Alabama Budget Shortfalls

Published February 13, 2015

The state of Alabama is projecting a $265 million deficit this year, caused primarily by ballooning costs for entitlement programs such as Medicaid. 

In 2003, Alabama spent $220 million on Medicaid. In 2015, the state projects it will spend more than $685 million on the same program, a 211 percent increase. In 2003, Medicaid accounted for only 17 percent of Alabama’s General Fund costs, but it has since grown to take up 37 percent in 2014.

‘A Bigger and Bigger Problem’

Alabama Policy Institute Vice President Katherine Robertson says the state’s budgetary problems are being driven by the constantly increasing cost of entitlement programs such as Medicaid.

“We are going to have to make some reforms to Medicaid,” Robertson said. “There is not an obvious solution. It is clearly becoming a bigger and bigger problem.”

Alabama is one of 15 U.S. states refusing to expand Medicaid under the Patient Protection and Affordable Care Act, commonly referred to as Obamacare.

Robertson says Medicaid expansion would have made the problem wors

“We are against that,” Robertson said. “It only makes the problem worse. It’s expanding a program that we already can’t afford.”

Expensive ‘Woodwork Effect’

Alabama is not alone in struggling with how to deal with the rising costs of Medicaid, says Nicole Kaeding, a budget analyst with the Cato Institute.

“Medicaid growth is an issue in many states,” Kaeding said. “Nationally, Medicaid is 25 percent of all state spending, with a large portion of that coming from the federal government. As a result, many states feel the weight of this large entitlement.”

Obamacare is not the sole reason for the growth, but it is an important part of the equation, Kaeding says.

“Many individuals sought out coverage options in 2014 to avoid the individual mandate. As they applied for coverage, they found out that they were already eligible for Medicaid. This is called the ‘woodwork effect,'” she said. “Medicaid is also growing rapidly at the federal level. As the federal government looks to control its growth, cuts in state reimbursements are likely, putting even more pressure on state budgets.”

Tom Gantert ([email protected]) is the Mackinac Center for Public Policy’s senior news correspondent.

Internet Info:

“How Obamacare Burdens Already Strained State Budgets,” Lanhee Chen, Heritage Foundation, http://www.heartland.org/policy-documents/how-obamacare-burdens-already-strained-state-budgets/

The photo, “Pills and money,” is copyright © 2008 Ragesoss, and was made available under a Creative Commons Attribution-Share Alike 3.0 Unported license.