Medicaid and State Budgets: A Look at the Facts

There has been much discussion about states' ability (and willingness) to help finance health reform, especially as it concerns an expansion of Medicaid. A little background data may help to illuminate the debate.

While significant, Medicaid's role in state budgets is far more modest than the headlines often suggest. Medicaid constitutes 16.2% of state general fund spending, leaving it well behind elementary and secondary education (in fact, as shown below, states spend nearly twice as much of their own money on elementary and secondary education (35.1%) as on Medicaid).

It is often, misleadingly, suggested that Medicaid consumes a larger share of state budgets than any other item. Misleadingly because the numbers cited to make this point include federal Medicaid matching funds states receive. So while this may be true for total state spending (if you include federal funds), it is not the case if you consider Medicaid spending as a share of a state's own general fund (basically just the state's money). In fiscal year 2009, state funds spent on Medicaid actually decreased by 2.2% from fiscal year 2008 due to the increased federal Medicaid support made available by ARRA - the federal stimulus legislation.

As the health reform debate continues, it is important to acknowledge state concerns regarding their dismal fiscal conditions and realize that there are certainly options to adjust the formula in order to make it more equitable across states.

However, it is also vital not to lose sight of the larger point - states are getting a pretty good deal out of health reform: near universal coverage with marginal costs. Yes, their budgets are in disarray and yes the federal government (not to mention their citizens) are expecting a bit more of them. But these requirements are years away, as states would not be expected to contribute to the cost of the newly eligible until 2015 in the House bill and 2017 in the Senate bill.

There's a risk of exaggerating claims without a full understanding of the fiscal implications of health reform (or current Medicaid spending). Everybody would be better served by having an honest debate about the true costs of reform and how best they can be shared.