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Medicaid
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Background
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Established by the Social Security Amendments of 1965, Medicaid is a joint federal-state entitlement program that pays for medical services on behalf of certain groups of low-income persons. Members of families with children and pregnant women, and aged, blind, or disabled persons are eligible for Medicaid if they meet certain financial standards. People outside of these categories, such as single adults or childless couples cannot qualify for Medicaid even if they have very little income. The program is financed, on average, 57 percent by the federal government and 43 percent by the state government. Medicaid served approximately 37 million people in 1996 at a cost of $158.5 billion ($92 billion federal funds and $66.5 billion state funds). The program accounts for roughly 6 percent of the federal budget and about 20 percent of state expenditures.
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Federal Budget
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Medicaid is the third largest social program in the federal budget, with Social Security ($347 billion), and Medicare ($191.3 billion) being the first and second, respectively. It is a means-tested entitlement program (eligibility is based on income) while Social Security and Medicare are not. Figure 1 shows federal spending by category, including whether the program is mandatory or discretionary. Nearly seventy percent of federal spending is for mandatory programs, including Social Security, Medicare, Medicaid, other entitlements, and interest on the debt.
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State Budgets
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In terms of total state spending (which includes federal funds), Medicaid expenditures represent just slightly less than elementary and secondary education, the largest spending category of state budgets (See Figure 3). Medicaid has grown from about 10 percent of state spending in 1987 to about 20 percent in 1996. In 1990, Medicaid replaced higher education as the second largest category of state spending.
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Medicaid
Spending Growth
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From 1990-1992, Medicaid spending grew in ranges of 20-30 percent each year. Factors that contributed to these growth rates were federally mandated and state-initiated enrollment expansions, the recession of 1990-1991, and increased provider payment rates. Also during this time, states increased usage of provider donations and taxes and intergovernmental transfers to generate federal matching funds for disproportionate share hospitals. These provider-generated revenues, such as a tax on each hospital bed, are treated as part of the state match for drawing greater federal Medicaid funding.
The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 placed restrictions on states’ use of these provider-generated revenues. In addition to defining acceptable types of taxes and donations, the amendments also set limits on the use of these revenue sources.
Program growth slowed from 1993-1995 to an average of about 10 percent and in 1996, Medicaid growth was 3.3 percent, one of the smallest annual increases since Medicaid was enacted in 1965. For the period between 1996 and 2002, the Congressional Budget Office (CBO) is projecting an average annual increase of 7.7 percent.
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Factors Contributing to Spending Decline
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According to the General Accounting Office (GAO) , no single pattern across states accounts for the dramatic decrease in 1996, but rather a combination of factors explains the low growth rate. GAO points to a generally improved economy and state initiatives to control costs, such as managed care for primary and acute care services or alternative programs for long-term care. Several states' growth rates dropped due to a sharp reduction in high levels of disproportionate share hospital payments to conform to restrictions on such payments. Other factors include the leveling off of Medicaid enrollment following planned expansions in prior years. Another factor mentioned was that some states accelerated 1996 payments into 1995 in anticipation of block grant proposals which would have used 1995 as the base year for calculating future grant awards. GAO also points out that "these circumstances are unlikely to recur to dampen spending increases in future years".
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Recent Action by Congress
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Deficit reduction and balancing the budget has been a focus of Congress for the past several years. As part of this effort, Congress made cuts of approximately $11 billion to the disproportionate share hospital program in 1997. However, they also added $24 billion over five years for a new child health block grant. Further information on the Child Health Block Grant is available on the NASBO website under Hot Policy Topics.
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Websites
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The following websites contain additional information on Medicaid:
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For further
information
please contact:
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Stacey Mazer, Senior Staff Associate
National Association of State Budget Officers
444 North Capitol Street, N.W., Suite 642
Washington, D.C. 20001-1511
Phone: (202) 624-8434 or Fax: (202) 624-7745
email: smazer@sso.org
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Policy Resources