Friday, October 17, 2008

Medicaid Spending Projected to Rise Much Faster Than the Economy

Cumulative Spending on Medicaid Benefits Projected to Reach $4.9
Trillion Over 10 Years

Under current law, spending on Medicaid is expected to substantially
outpace the rate of growth in the U.S. economy over the next decade,
according to a new annual report released today by the Centers for
Medicare & Medicaid Services (CMS).

The report projects that Medicaid benefits spending will increase 7.3
percent from 2007 to 2008, reaching $339 billion and will grow at an
annual average rate of 7.9 percent over the next 10 years, reaching $674
billion by 2017. That compares to a projected rate of growth of 4.8
percent in the general economy.

HHS Secretary Mike Leavitt presented the report today at the fall
meeting of the National Association of State Budget Officers (NASBO).

"This report should serve as an urgent reminder that the current path of
Medicaid spending is unsustainable for both federal and state
governments. We must act quickly to keep state Medicaid programs
fiscally sound," Secretary Leavitt said. "If nothing is done to rein in
these costs, access to health care for the nation's most vulnerable
citizens could be threatened."

Although the CMS Office of the Actuary regularly produces 75-year
projections of Medicare expenditures for the annual report of the
Medicare Board of Trustees, the report released today is the first
annual fiscal report on Medicaid.

The Medicare Trustees Report provides detailed information on the past
and estimated future financial operations of the Hospital Insurance and
Supplementary Medical Insurance Trust Funds. This new annual report on
Medicaid contains analysis of past program trends and projections of
Medicaid expenditures and enrollment for the next 10 years only. Future
reports will expand on content to include longer-range projections and
more extensive analysis.

Medicaid is a federal/state partnership program that provides health
care to certain low-income people and is one of the largest payers for
health care in the United States. For both federal and state
governments, Medicaid is the largest source of general revenue spending
on health services. Notably, Medicaid is the largest source of general
revenue spending for health care for both the Federal government and the

This growth rate compares to spending projections for Medicare of 7.4
percent per year through 2017. Medicaid benefits spending over the next
10 years is projected to be $4.9 trillion. These amounts are in
addition to that spent by federal and state governments on the State
Children's Health Insurance Program (SCHIP).

At this rate, Medicaid growth is projected to slightly exceed growth in
overall health care expenditures, which is projected by CMS actuaries
and economists to increase by 6.7 percent per year over the next 10
years, or over twice the rate of general inflation. Additionally,
Medicaid's share of the Gross Domestic Product (GDP) is projected to
reach about three percent in 2017. The combined share of GDP spending
for Medicare and Medicaid is projected to be 6.9 percent by 2017.

As a partnership program, both states and the federal government pay for
services to Medicaid beneficiaries. The federal government matches
state expenditures based on a formula that yields subsidies ranging from
50 percent to as high as 83 percent. The average federal medical
assistance percentage is 57 percent.

However, even with federal support, states report they are struggling to
meet their share of expanding Medicaid costs. State spending on
Medicaid has remained relatively stable as a share of states' budgets,
averaging about 20 percent from 1995-2007. However, some states such
as Maine are already spending as much as 31 percent of their budgets on
Medicaid, according to NASBO.

NASBO is projecting that state spending on Medicaid will increase by 4.4
percent from 2008 to 2009. NASBO says such an increase would be more
than four times the rate of growth in the average state general fund.

"High and increasing Medicaid spending clearly leaves states less able
to fund other state priorities," said Acting CMS Administrator Kerry
Weems. "This new financial report confirms that America's health care
system faces significant fiscal challenges.

"As a nation we must tackle the difficult job of bringing health care
costs under control and assuring that our health care dollars are buying
the highest quality, most efficient health care services."

Other findings from the report include:

* Average Medicaid enrollment is projected to increase 1.8 percent
to 50 million people in 2008.
* During the next 10 years, average enrollment is projected to
increase at an average annual rate of 1.2 percent and to reach 55.1
million by 2017.
* The estimated average cost of a person covered by Medicaid in
2007 is $6,120; however, per-enrollee spending for non-disabled children
($2,435) and adults ($3,586) was much lower than that for aged ($14,058)
and disabled beneficiaries ($14,858), reflecting the differing health
status of these groups.
* Medicaid represented 14.8 percent of all health care spending in
the United States in 2006.
* Medicaid is projected to grow as a share of the federal budget
from 7.0 percent in 2007 to 8.4 percent by 2013.

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