State Medicaid Spending Outpacing All Other Expenditures, Report Says

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Ralph Lindeman  

Medicaid has been the largest single expenditure in state budgets in recent years, accounting for nearly 24 percent of total state spending in fiscal year 2011, according to a report released June 12.

In addition, the report by the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) said state spending on Medicaid increased by 20 percent in the next fiscal year, 2012.

At the same time, federal Medicaid spending declined by 8.2 percent in FY 2012 because of the expiration of enhanced federal matching funds temporarily authorized by the American Recovery and Reinvestment Act of 2009 (ARRA), said the report, The Fiscal Survey of States.

Looking ahead, governors' proposed state budgets for FY 2013 project a slower growth rate in Medicaid spending of 3.9 percent, the report said. Even with this reduced growth rate, however, Medicaid is still outpacing overall general fund expenditure growth in proposed state budgets, the report said.

“With the growth of Medicaid expenditures, spending priorities will again face competition for state budget dollars this fiscal year,” NGA Executive Director Dan Crippen said in a statement.

He added: “States have undertaken numerous actions to contain Medicaid costs, including reducing provider payments, cutting prescription drug benefits, limiting benefits, reforming delivery systems, expanding managed care and enhancing program integrity efforts. These efforts alone, however, cannot stop the growth of Medicaid.”

Medicaid Spending Tied to Economy.

The continued growth in Medicaid spending is primarily the result of increased enrollment due to the sluggish labor market and increased per capita health care costs, the report said.

Medicaid enrollment increased by 5.1 percent during FY 2011 and 3.3 percent in FY 2012, and it is projected to increase by 3.6 percent in FY 2013, the report said.

The drop in ARRA funding has had a major impact on state Medicaid spending. In FY 2010 and 2011, states had $112.8 billion in flexible emergency ARRA funding, the report noted. Spending from these flexible funds peaked in FY 2010 at $61.2 billion and then fell slightly to $51.6 billion in FY 2011.

FY 2012 marked the first time since FY 2009 that states implemented spending plans without enhanced federal Medicaid matching funds or substantial support from ARRA's State Fiscal Stabilization Fund, the report noted.

States Remain Cautious.

In overall spending trends, the report said, states remain cautious about the strength of the national economic recovery. “Fiscal trends indicate that while aggregate state revenues will be about their pre-recession levels in FY 2012, total budgetary spending will not yet surpass pre-recession levels,” the report said.

“The fiscal fallout from the unprecedented budgetary declines in FY 2009 and FY 2010 puts states well below historical growth trends in general fund spending and revenue,” the report added.

Fiscal year 2013 general fund revenue is expected to increase by about $27.4 billion, or 4.1 percent, while additional recommended spending is projected to increase by $14.6 billion, or 2.2 percent, the report noted, suggesting that states remain cautious about the strength of the national economic recovery.

Governors recommended general fund spending of $683 billion for FY 2013, which is 2 percent over FY 2012, compared with a 3 percent increase over FY 2011, the report said. Governors proposed nearly $7 billion in new net taxes and fees for FY 2013, according to the report.

“Despite some improvement in state budgets since the depths of the recession, state budget growth is still significantly below average--growing less than half the average growth of the past few decades,” NASBO Executive Director Scott Pattison said in a statement.

By Ralph Lindeman  

The report is at

Request Health Care on Bloomberg Law