It’s Official: Medicaid Spending Spirals Out of Control

BALTIMORE–The Centers for Medicare and Medicaid Services warned
policymakers late Friday that Medicaid spending is projected to
grow much faster than the economy over the next 10 years. With
expenditures headed toward $5 trillion over the decade, agency
officials said, now is the time to rein in costs.

While the news about the federal-state health care program isn’t
exactly unexpected, a new report compiled by the CMS Office of the
Actuary–the first such report in Medicaid’s 42-year
history–confirms the budget crunch both the U.S. and state
governments have been battling and warns it will get worse.
According to the report, Medicaid benefits spending will increase
7.3 percent from 2007 to 2008, peaking at $339 billion, and will
grow at an annual average rate of 7.9 percent through 2017 to hit a
high of $674 billion. That rate is far beyond the general
economy’s current annual growth rate of 4.8 percent.

Medicaid benefits spending over the next 10 years is projected
to total $4.9 trillion, according to the report.

“This is an urgent reminder that the current spending path
of Medicaid is unsustainable,” said Kerry Weems, CMS acting
administrator, during a media conference call.

Mike Leavitt, Department of Health and Human Services secretary,
presented the report Friday at a 4 p.m. meeting of the National
Association of State Budget Officers. “We must act quickly to
keep state Medicaid programs fiscally sound,” he said.
“If nothing is done to rein in these costs, access to health
care for the nation’s most vulnerable citizens could be
threatened.”

The increased expenditures will be fueled by growing enrollment
and other factors, said Rick Foster, CMS chief actuary.

“The growth differential reflects a growing number of
people covered by Medicaid; it also reflects growth in prices paid
in the health care sector, as well as new, more complex
[services],” Foster said.

The earlier the issues are dealt with, the more options
policymakers will have, Foster said.

Unlike Medicare and Social Security, Medicaid is not tied to a
trust fund, so solvency is not an issue, he noted. Still, if left
to spiral higher and higher, Medicaid expenditures could imperil
both federal and state budgets.

“Medicaid is the largest source of general revenue
spending on health services,” Foster said. On average, he
said, the federal government pays about 57 percent of a
state’s Medicaid bill, while the state pays the other 43
percent.

Increasingly, however, Medicaid is taking more and more of a
state’s total budget. CMS said the average share is 20
percent, but NASBO said some states, such as Maine, are already
allocating as much as 31 percent to Medicaid. NASBO projects that
state spending will increase by 4.4 percent from 2008 to 2009.

“High and increasing Medicaid spending clearly leaves
states less able to fund other state priorities,” Weems said,
adding that the report makes it very apparent that great fiscal
challenges lie ahead.

According to the report, Medicaid also consumed 7 percent of the
federal budget in 2007 and is expected to account for 8.4 percent
by 2013.

The actuarial report also shows that:

–Average Medicaid enrollment is projected to increase 1.8
percent to 50 million people in 2008;

–Average enrollment is projected to increase at an annual
average rate of 1.2 percent, reaching 55.1 million by 2017;

–Average total expenditure per Medicaid beneficiary in 2007 was
$6,120; however, spending per enrollee for non-disabled children
was $2,435 and for adults, $3,586, much lower than for aged
($14,058) and disabled beneficiaries ($14,858); and

–Medicaid represented 14.8 percent of all health care spending
in the United States in 2006.

While this report covers only 10 years, CMS officials said
future reports will include longer-range projections and more
extensive analysis.

To read the full report, click here.