Medicaid Spending to Double by 2017, CMS Officials Say

Published January 1, 2009

State and federal spending on Medicaid is projected to increase by more than 7.9 percent per year over the next decade under current Medicaid plans, according to a report by the Centers for Medicare and Medicaid Services’ Office of the Actuary.

The report projects an increase in taxpayer-funded Medicaid spending from $339 billion in 2008 to $674 billion by 2017, virtually doubling the annual cost of the program in that time.

“Health care spending is rising at twice the rate of national income,” said Devon Herrick, Ph.D., a senior fellow with the National Center for Policy Analysis. Herrick says this kind of rapidly rising spending is dangerous to both the economy and individual households.

“Health care prices are rising at three times the rate of inflation,” Herrick said. “If something is not done, over time health care spending will crowd out other expenses in the family budget. Medicaid is not different: It is on track to crowd all other government spending programs.”

May Be Even Worse

Greg Scandlen, director of Consumers for Health Care Choices at The Heartland Institute, said such predictions, though dire, may not even adequately describe the true scope of the problem given the declining state of Wall Street.

“These projections were made before the current economic turmoil, so if anything they understate the problem,” said Scandlen. “Medicaid is already in very deep trouble. One-third of the uninsured are already eligible for Medicaid or SCHIP but are not enrolled.

“Unemployment is increasing the numbers of people eligible for the program, while state [tax] revenues are down dramatically,” Scandlen continued. “The year 2009 will be marked by massive cuts in Medicaid spending by the states. At the same time, Medicaid already pays physicians and hospitals less than their costs of doing business. There are no further cuts in payment levels possible.”

‘Unrealistic Promises’

Medicaid could cost less and work more efficiently if it ran more like the pilot reforms taking place in Florida, in which lower-income families are allowed to choose a health care plan from a variety of private-sector options, said Scandlen.

“Medicaid is and has always been fundamentally flawed,” Scandlen said “It makes no sense for the state government to directly run an insurance program. They are not good at it. And Congress and state legislatures have freely made unrealistic promises about what must be covered under these programs. On paper the benefits are far, far richer than anything available in the private sector.

“It would be far better to use available Medicaid funds to help the poor acquire private coverage that they can keep when they become employed and their economic circumstances improve,” Scandlen concluded. “The states must decide how much they can spend, and then allocate to those in greatest need.”

Reform Needed

Herrick agrees. “Comprehensive Medicaid reform will have to take several different forms,” he said.

“First off,” Herrick noted, “legislators need to understand that by expanding eligibility they crowd out private coverage. That means that from 50 percent to 75 percent of new spending actually goes for people who have dropped private coverage to take advantage of free public coverage. Second, we need to free the providers by deregulating the provision of care. Low-cost retail clinics staffed by nurse practitioners are a great idea.

“People need to control more of the dollars that pay for their own care,” Herrick concluded. “If patients themselves don’t make decisions regarding health care and other uses for their money, somebody else will have to. That someone will be employers, insurers, or government.”

Aleks Karnick ([email protected]) writes from Indiana.

For more information …

“Actuarial Report on the Financial Outlook for Medicaid,” Center for Medicare and Medicaid Services’ Office of the Actuary: