Medicaid Spending Surges in 2007

Published June 1, 2007

Medicaid spending is expected to grow more than 6 percent in 2007, according to the latest projections from the Congressional Budget Office and the U.S. Department of Health and Human Services, adding to the strain of what is already the largest spending commitment in most states.

Medicaid programs serve 53 million people across the nation. Spending is expected to reach $336 billion this year, accounting for 22 percent of state spending and eclipsing overall education spending. An estimated 14 million more people are currently eligible for Medicaid but are not enrolled.

As the Associated Press reported in late February, “[t]he welfare state is bigger than ever despite a decade of policies designed to wean poor people from public aid.”

Nearly one in six persons receives some form of public aid today, according to the AP analysis.

The National Center for Policy Analysis (NCPA) estimates one in three children and more than half of all nursing home residents in the U.S. are on Medicaid.

Eligibility Expanding

Medicaid is a partnership between the federal government and the states to provide health insurance to low-income children and seniors. But in many states eligibility has been expanded to include persons and families with incomes more than triple the poverty level ($61,332 for a family of four). Growth in state spending has been linked to the swelling number of Medicaid recipients.

The federal government matches spending by the states, at a rate based on the general income of the individual state. High-income states receive equal matching of federal dollars, while lower-income states may receive as much as $3 for every $1 spent.

Overall, the federal government matches approximately 57 percent of state spending on Medicaid, according to the National Association of State Budget Officers. There is no cap on federal spending because Medicaid is considered an entitlement program.

Sustaining Medicaid

Despite the surging Medicaid rolls and spending, future growth in government revenues should be sufficient to sustain Medicaid spending growth, according to a study released in February by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured (KCMU). The report was written by Richard Kronick of the University of California-San Diego and David Rousseau of KCMU.

“Even under pessimistic assumptions, the study provides a new perspective on Medicaid’s future financing,” said Kronick in a press statement accompanying the report. “While a substantial component of state government spending, Medicaid is not likely to be the financial burden squeezing out other public priorities that some policymakers fear.”

However, Merrill Matthews, a resident scholar for the Institute for Policy Innovation, said the aging of the U.S. population will bring tremendous challenges to future health care projections.

Matthews noted “the growing need for long term care–a major portion of the Medicaid budget–could skew those projections.”

Reaching Frightening Levels

In contrast to the Kaiser Family Foundation study, the United States Government Accountability Office (GAO) warns in “Fiscal Stewardship: A Critical Challenge Facing Our Nation,” issued January 31, 2007, “[O]verall federal spending on entitlement programs will reach frightening financial levels if spending is not curbed.”

According to the GAO, “[O]ne would need approximately $39 trillion invested today to deliver on the currently promised benefits for the next 75 years.” The report notes the sum of all government income was only $2.44 trillion this year. “Based on various measures,” the GAO concludes, “the federal government’s current fiscal policy is unsustainable.”

According to “Health Care Spending: What the Future Will Look Like,” issued in June 2006 by the NCPA, “by 2025 government spending on health care will have risen to 13.8 percent of GDP–growing to 32.7 percent by 2050.”

According to NCPA Senior Fellow Devon Herrick, government spending on health care in 2002 was 6 percent of U.S. GDP.

“Clearly both Medicaid and Medicare are unsustainable at current rates of growth,” Herrick said.

Dane G. Wendell ([email protected]) is a legislative specialist at The Heartland Institute focusing on issues of children, welfare, and poverty.

For more information …

“Fiscal Stewardship: A Critical Challenge Facing Our Nation,” January 31, 2007, Government Accountability Office,

“Health Care Spending: What the Future Will Look Like,” Study No. 286, June 28, 2006, National Center for Policy Analysis,