States Take a Breath: Medicaid Spending Lowest in Years

What does your state’s budget have to do with your life? What’s personal about Medicaid spending?

Medicaid provides health care coverage to low-income, elderly, and disabled people. If you do not receive Medicaid or know someone who does, the program still affects you.

Your taxes go to Medicaid. It is a large portion of most state budgets, and a rise in Medicaid spending can amount to budget tightening in other areas, including public education and social service programs.

But in Fiscal Year 2006, most states had tax revenues that grew faster than Medicaid costs. For the first time since 1999, brought in an average of 3.7 percent more in tax revenues while Medicaid spending increased by just 2.8 percent.

Saving money on Medicaid is a good thing from a taxpayer’s perspective, but what are the tradeoffs? How does it affect Medicaid recipients?

Facts and Tradeoffs

Two pieces of federal legislation have brought down Medicaid costs, the first being the Medicare Modernization Act. This bill affected Medicaid beneficiaries who also received Medicare benefits. Six million of these people, called dual-eligibles, were forced off of Medicaid and on to the Medicare drug plan -- Medicare Part D.

Although the Medicare Modernization Act cut Medicaid costs for the government, it has been difficult for dual-eligibles, who had trouble getting their medications during the transition to Medicare Part D. Some states had to create temporary programs to cover dual eligibles during that time - an expense that the federal government has yet to pay back to states.

For more on Medicare Part D, click here.

Other legislation

Also affecting Medicaid is the Deficit Reduction Act of 2005, which requires applicants to prove that they are U.S. citizens. This has increased administrative costs but decreased enrollment, resulting in lower costs to Medicaid. However, non-citizens who were previously covered by Medicaid but are no longer insured are likely to go to the emergency room for care. This raises health care costs for all of us.

Economy and Medicaid

A strong economy decreases Medicaid costs as well. When people make more money, the federal government pays less in Medicaid costs. This is the formula: the higher the average personal income for a state, the lower the percentage that the federal government pays that state for Medicaid.

Therefore, if a few people make a lot more money, the average can change dramatically and then affect some of the poorest citizens - Medicaid recipients.

What will states do now that they’re not so tight?

States have been cutting Medicaid costs by freezing payments to doctors for the past few years. Some states plan to increase these payments now that overall Medicaid spending has dropped.

Further, many states are planning to improve the quality of their Medicaid programs. By Fiscal Year 2007, more than two-thirds of states will have quality initiatives in place. These initiatives improve technology, increase staff, and better coordinate health care across agencies. Overall, states have moved away from cost management and are focusing on the expansion of benefits, especially the way that long-term care is delivered.

But states aren’t planning on throwing a party just yet. State Medicaid officials predict that costs will be up as much as five percent by next year. Growing health care costs and disappearing employee-sponsored health coverage will continue to strain states.

What do you think?

Should states continue to look for ways to cut Medicaid costs? What do you think of Medicare Part D in relation to dual-eligibles? Do you favor Medicaid cuts or increases to benefits?

Your input matters

Your representatives in Congress DO care what you think. Especially now -- 2006 is an election year and many representatives will be looking to reconnect with their constituents. Let your congressmen and women know what you think! Give your senators a piece of your mind! To get to your reps, click here.

To explore our archive of past Health Issue updates, click here.

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