State Fiscal Crisis

Washington Post: Medicaid "will place the biggest budgetary burden on states"


Yesterday, I noted that states were still having trouble making ends meet on their Medicaid bills—and the program expansion called for by the new health care law is only expected to make their already precarious fiscal situations worse. Today, The Washington Post, reporting on new data released by the National Association of State Budget Officers and the National Governor's Association, makes the same point:

Sorry, we're out of money. But how about a lollipop?

The report says that Medicaid, the combined federal-state health program for the poor and the disabled, will place the biggest budgetary burden on states. Because of increasing caseloads, declining federal help and spiraling health-care costs, state Medicaid spending is growing much faster than state revenue, crowding out funding for other priorities.

The federal government had provided extra Medicaid help to states as part of the stimulus program. But that help has ended, prompting states to increase their Medicaid spending by an average of 29 percent this fiscal year, according to the Kaiser Family Foundation.

Many states have streamlined their Medicaid programs in an effort to control costs. Still, officials in more than half of the states said in a recent survey that there is an even chance that their Medicaid programs will face a budget shortfall as enrollment continues to increase.

Officials say the fiscal pressure that Medicaid puts on states is expected to increase when the federal health-care overhaul takes effect in 2014. Although the federal government is required to pick up the costs for people newly eligible for the program, many who are now eligible but not enrolled are expected to be drawn in, and states must shoulder part of those costs.

As I explained in a feature on states and the new health law last summer, under ObamaCare, the federal government covers the full cost of newly eligible enrollees in Medicaid;after a few years, states are eventually required to pick up 10 percent of the cost. But states get no help with new enrollees who were previously eligible for programs like Medicaid and S-CHIP. Estimates indicate that there are 10-12 million individuals who qualify for these programs yet for whatever reason aren't enrolled; given that the law requires everyone to carry health insurance starting in 2014, it's a safe bet that a large number of them will find a way to enroll. 

For the last few years, the federal government's response to the size of state Medicaid bills was to provide substantial additional funding on a temporary basis—a bailout, in a sense, for a program that states can't entirely afford on their own. The problem with these temporary funding measures, which typically appear in economic downturns as more individuals qualify for aid, is that if and when the money goes away, the additional costs frequently don't. The temporary federal funding measure has created even bigger headaches than usual this time around, because historically states could reduce eligibility in a fiscal squeeze. But ObamaCare also penalizes them for doing that.