News Overall Medicaid spending rose by 5 percent in 2006, according to nationwide findings issued by governors and state budget officials Dec. 13. Medicaid spending is about 22 percent of total state spending, while all health care accounts for about 32 percent and is the single largest portion of total state spending, according to the findings from The Fiscal Survey of States, issued by the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO). While spending on Medicaid, a state-federal health program for low-income people, increased by an estimated 5 percent in fiscal 2006, the state and federal growth rates were different, the report said. State funds increased by 7.7 percent and federal funds increased by 2.9 percent, the report said, citing NASBO's latest State Expenditure Report. "Some of the reasons for the higher growth rates of state funds versus federal funds are attributable to factors such as a change in the amount of federal funds individual states will receive as part of the [Medicaid matching funds] formula in current law and phasing out of special financing," the new NGA/NASBO report said. The report also looked at the big picture of state budget issues and found that state fiscal conditions "continued to improve in fiscal 2006." NGA and NASBO found there were increased revenues and strong budget reserves, which enabled the states to offer tax cuts, boost funding for programs, and replenish their budget stabilization funds. "States remain mindful, however, of projections for more modest growth in 2007 and expenditure pressures that include the pent-up demand of previously cut programs, budgetary strain imposed by Medicaid and issues such as pensions, demographic shifts and infrastructure," the groups said in a release. Challenges Ahead The report said that, with its "dominance in state spending, Medicaid continues to be a major budget issue for states." The report described Medicaid as a means-tested entitlement program financed by the states and the federal government that provides comprehensive and long-term medical care for more than 59 million low-income people. The report said states "face a number of challenges in funding health care both within the Medicaid program and throughout state government." Major concerns include health care cost increases, greater utilization of services, rising state employee health insurance costs, the number of uninsured people, the aging population (and their impact on long-term care financing), and changes at the federal level affecting Medicaid. "Even with the more moderating growth rates in health care spending from the height of the recession, projections over the next decade remain at an average annual rate of growth of 8 percent," the report said, citing the most recent estimates by the Congressional Budget Office. "With Medicaid comprising 22 percent of state budgets, these long-term growth rates will continue to strain state budgets," the NGA/NASBO report said. In contrast to the NGA findings on Medicaid growth, some recent preliminary estimates from the Department of Commerce found that the overall Medicaid expenditures may be flattening and even decreasing slightly, looking at the fiscal year ended Sept. 30. Commerce's Bureau of Economic Analysis estimated that the state-federal health care program for low-income people spent $300.8 billion for the year ended Sept. 30, 2006, compared to about $301 billion for the year ended Sept. 30, 2005 (No. 228 HCDR 11/28/06 ). Dual Eligibles' Costs The report said a "significant factor affecting Medicaid growth rates" is the change in the financing of prescription drug benefits for the dual eligibles--people who are eligible for both Medicaid and Medicare. Beginning in January 2006, the prescription drug costs for the dual eligibles were no longer part of the Medicaid program; instead, these costs are now part of the Medicare Part D drug benefit, the report said. "States finance these benefits by providing a payment to the federal Medicare trust fund," a payment known as the clawback. The report said the amount that will be paid by states to the federal government represents about 5 percent of state Medicaid expenditures. The report said, "At the federal level, lower Medicaid spending will be offset by an increase in Medicare spending for the dual eligibles. Other costs for the dual eligibles, such as for long-term care, remain within the Medicaid program." The findings from the governors and state budget officials.
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